High-net-worth (HNW) individuals: what portion of the population, one may reason, could possibly be in less need of a mortgage broker’s services? Surely lenders are willing to bend over backwards to service the mortgage needs of such individuals. Who, after all, would make a more ideal borrower than somebody with piles of wealth and a torrential stream of income pouring into their bank account? Who is more likely to meet their mortgage payments? Who could present less of a risk? Contrary to conventional wisdom, however, the high-net worth segment of the population is one of the mainstream mortgage industry’s worst-served demographics.
In the wake of 2008’s financial crisis, the government introduced a set of stringent regulatory changes to the mortgage industry in an attempt to shore up the financial foundations upon which the property market rests. At the same time as this was taking place, many lenders took it upon themselves to reassess their underwriting processes, choosing to tighten their lending criteria in order to ensure that no further ‘risky lending’ could take place. The combined result of these changes, as it turned out, was that many lenders began to implement what is now being referred to as a ‘tick-box’ approach to lending. These ‘tick-box’ approaches were far more rigid than the cavalier methods that preceded them; they required that borrowers satisfied a predetermined set of criteria in order to qualify for a mortgage. If such criteria were unmet, then the application was rejected.
For the most part, this new methodology has served the purpose for which it was originally introduced; but it has also added an element of mechanical rigidity to the underwriting process which is working to exclude certain types of borrower from the mainstream mortgage market. Foremost amongst this excluded group are HNW individuals, who often fail to tick the requisite boxes because their wealth profiles are highly idiosyncratic. In addition to a regular salary, for example, their income may come from dividends, from rent, from the sale of assets; their assets may be held inside trusts or other structures; they may own art-work, antiques, or luxury sports cars whose value mainstream lenders are unequipped to assess or lend against. When individuals with such atypical wealth profiles apply for mainstream mortgages, therefore, they are often rejected not because they lack the means to repay the loan, or because the loan is actually unaffordable, or for any other legitimate reason, but simply because the lender’s underwriting methods are insufficiently sophisticated to factor the full complexity and scope of the individual’s financial circumstances into their calculations.
Given all that has been said, one may be forgiven for thinking that HNW borrowers are without hope in the current lending climate – but this is absolutely untrue. While mainstream borrowers are unable to accommodate the financial needs of many HNW individuals, there are other financial institutions – most notably, Private Banks – that are able to incorporate the full complexity of a HNW borrower’s financial circumstances into their mortgage calculations, and thus to offer such individuals a range of competitive financial options. In actuality, it is often the case that these institutions are able to offer a degree of flexibility in their lending that mainstream banks cannot come close to matching.
The greatest obstacle that stands between HNW mortgage seekers and highly competitive, highly flexible lending, therefore, is knowledge: knowledge of the mortgage market, of which lenders are able to provide them with the types of finance that their unique circumstances demand. This is where the services of a good mortgage broker can be invaluable. The mortgage market is a complex landscape with many potential hazards and pitfalls. Good mortgage brokers know this terrain like the back of their hands – they know which lenders are best suited to portfolio landlords; which offer the best loans for first-time buyers with small deposits; which lenders demand one year’s accounts when calculating affordability; and most relevant to this article, which lenders have the means and appetite to lend to high-net worth borrowers with complex circumstances and demands. The knowledge a broker can bring to bear in such situations is therefore often the difference between a borrower being able to secure property finance at a highly competitive rate and such an individual having their mortgage application rejected.
As an example, we recently had a high net-worth client whose circumstances were so complex as to send the underwriters of any of the mainstream lenders into a tailspin (see case study here). However, as an independent mortgage broker with access to every lender on the market and strong working relationships with a large number of specialist lenders and Private Banks, Private Finance’s consultants were able to broker a highly competitive deal that allowed our client to realise his highly ambitious objectives.
If you are a high net-worth individual and would like to arrange an obligation-free consultation with one of Private Finance’s mortgage consultants, you can do so by calling us on +44 (0)2073172820 or by emailing us at firstname.lastname@example.org.
Your home may be repossessed if you do not keep up with repayments on your mortgage.