Luxury Property and Lending – Advice for HNWIs
The Financial Conduct Authority (FCA) defines a high-net-worth mortgage client as a customer with an annual net income of no less than £300,000 or net assets of no less than £3,000,000, or whose obligations are guaranteed by a person with an income or assets of such amount. Often high-net-worth individuals can obtain the funding they need via high street banks, Barclays as an example can consider loans over £5 million at 70% LTV and mortgages over £10 million at 65%. Many struggle via retail options however as their total wealth and affordability is not considered as part of their application.
High-net-worth individuals typically have multiple income streams that can be difficult to fully utilise with mainstream lenders, this is where private banks are able to consider wealth holistically and a broker familiar with complicated income sources are essential. An example of these would be bonuses, commission, contractor income, company profits, stocks and shares, earnings in a foreign currency, rental income or non-executive roles. A client’s biography is essential, with the adviser required to build a precise picture of the client’s overall wealth, background, CV and business ventures.
Borrowing to buy a home or an investment property can be part of a wealth creation strategy, especially while interest rates are still comparatively low despite the recent increases in the Bank of England base rate. A mortgage enables clients to protect existing investments, preserve liquidity and ensure maximum tax planning can be accommodated. Subject to a valid repayment strategy, flexibility in the form of an interest only mortgage may be required, which keeps the committed monthly payment low and may enable a client to keep a valuable asset that they would prefer not to sell to fund the property purchase.
Investec Private Bank for example requires applicants to have £300,000 minimum yearly earnings and ideally a £1 million minimum loan size. Providing a customer has a suitable repayment strategy they can potentially consider 85% LTV on an interest only basis in the right circumstances. Additional features can also be built into the facility such as capital reductions to coincide with cash flow, lump sum repayments at the time of an annual bonus for example. Investec provide mortgage funding for not only home lending, but also buy-to-lets and second homes.
In response to soaring inflation the Bank of England has increased interest rates four times in a row since December 2021, the base rate moving from 0.1% to 1% at the time of writing. This has seen mortgage rates rise, with data from the Building Societies Association stating that the average quoted 2-year fixed rate at 75% LTV moved from 1.2% in September 2021 to 1.76% in February 2022. Mortgage rates often change in expectation of base rate adjustments and April has brought rises in the energy cap, national insurance and dividend tax which along with the continued impact of the war in Ukraine all bring further inflationary pressure.
In a high inflation environment borrowing significant amounts of debt can be a risk. Many clients with larger loans have been considering whether to fix into a longer-term product immediately, even if it incurs an early redemption penalty on the existing loan. It is important to review all options with an adviser to ascertain the best solution. Since the global pandemic many lenders have increased their mortgage offer validity period to 6 months, so if the client’s existing product is due for renewal, they are able to review and potentially secure a new deal far in advance.
So, what will be the impact on the UK luxury property market? With the increased cost of living eroding the value of money, at a micro level, we have many clients still keen to buy and move capital into a property asset. This is across the board, from first-time buyers, home-movers and property investors. At a macro level a one percentage point increase in the base rate could reduce prices between 2% to 11%, according to the Bank of England’s deputy governor Sir Jon Cunliffe. Many experts however believe UK house prices to be robust enough to withstand any increase in interest rates due to the demand.
get in touch
https://www.onpointmortgages.com
Lee Langley
0203 633 4940
lee@onpointmortgages.com
Your home may be repossessed if you do not keep up repayments on your mortgage.
Some forms of buy to let mortgages and some forms of commercial lending are not regulated by the Financial Conduct Authority.
Lee Langley is the Principal Mortgage and Protection Adviser at OnPoint Mortgages.
OnPoint Mortgages a trading style of L&D Mortgages Limited is an appointed representative of The On-Line Partnership Limited which is authorised and regulated by the Financial Conduct Authority.
Registered address: 25 Homefield Road, Bushey, Hertfordshire, WD23 3AP. Registered in England & Wales under 10500099.