High Net Worth Mortgages

What is a high net worth mortgage?

A high net worth individual (HNWI) usually owns multi-million-pound houses, luxury assets and has an extensive company/share portfolio. It might be that the individual has inherited a high net worth, so the wealth is in trusts or other financial products. The Financial Conduct Authority (FCA) considers someone as being a high net worth individual if they have an income of over £100,000 and assets with a net worth of over £250,000, not including the primary residence of the individual, and other exemptions.

However, it should be considered that different lenders, may use different thresholds to determine whether they consider the wealth level to be high or not. For those on the border line then consider talking to an Active adviser asap to find out if you need to be looking at a HNW mortgage or a standard mortgage. That one phone call could be a game changer for you.

Why would a HNWI need to borrow money?

A high-net-worth individual may not have a large income or a lot of cash that they can use to secure a property as an HNWI will often have their wealth tied up in various assets or in accounts structured in a way that does not give them access very quickly or easily. This means that HNWIs may still need to borrow in order to purchase their next property, as they cannot access the funds to make the purchase or do not want to divest their assets.

Sometimes it is not a practicality issue and a lack of liquid assets but rather a strategy used by the super-wealthy in order to expand their portfolios. Although we are starting to see a small increase now, interest rates have remained at a very low level for over a decade since the financial crisis of 2008/2009. Those with the ability to do so, have recognised this opportunity and have capitalised on the low rates to borrow money to expand their portfolio, through buying property, land, shares, or other valuable assets, rather than risking their liquidity and also gaining a much higher return on their investments as well.

Why do HNWIs struggle to borrow money?

The super-rich might seem like perfect candidates for lenders to give mortgages to, but they are often seen as complex and tricky applicants. Many wealthy mortgage applicants are not based in just one country and have homes in various cities and places around the world, each country having its own laws and regulations when it comes to taxes, income and assets. Their income, savings, investments etc can also all be in different currencies. This makes borrowing money in one country difficult as you are adding extra layers of bureaucracy and complexity to the already long mortgage approval process.

As well as bureaucracy and geographical complexity, HNWI’s income is often received in the form of dividends and bonuses which are often paid annually and will fluctuate year on year as well. This means that the lender does not have a stable income pattern to refer to when assessing the stability of their lending.

The other factor that ultimately makes it more difficult for HNWIs to borrow money is because a significant number of HNWIs are over the age of 65 because they have worked their whole lives building their portfolio and developing themselves and their businesses or assets. This brings about difficulties for lenders as the older generation typically are not a secure “bet” to lend to because of the obvious dwindling number of years that the debtor will be around to pay the loan back as well as the likelihood of their income diminishing as they enter retirement.

The financial crisis of 2008 has further changed the financial lending markets substantially because the government and the FCA have significantly changed the criteria that needs to be met in order to lend money. Whilst this prevents the catastrophic sub-prime mortgage market from growing as it did back then, it also adds another layer of complexity and difficulty for the aforementioned super-rich who do not have steady incomes and cash in their banks, which are the traditional ways of securing a mortgage or loan.

Further information

If a high-net-worth individual is looking to buy a new property, especially if it is as their next home, it is unlikely to be an average priced 1960s 3 bed-semi in the suburbs of a faceless city, the properties they will be looking at are the ones on Rightmove in descending order! This adds another level of complexity to their mortgage process because it becomes a significantly large mortgage loan that they require.

As it is a large mortgage loan, so is the deposit large as well. So, an HNWI needs to ensure they do have cash available to provide the large deposit as well. Because of the size of the loan and the accompanying high-risk element to this style of borrowing, the lenders will usually require a fairly strict loan to value ratio. As previously mentioned, this can be difficult for high-net-worth individuals whose wealth is tied up in assets that cannot or don’t want to be divested in order to for the HNWI to expand their portfolio further.

A question often asked to Active’s High Net Worth specialist team is can I remortgage a property? The answer is, of course, yes absolutely! In fact, it is even sometimes easier to access these than a standard mortgage as you have already proved your payback abilities. A mortgage lender will then look at your assets and your income streams and leverage it in order to guarantee another loan against your property. If you have any questions the specialist HNW team at Active can answer your queries, quickly and effectively.

It is also possible for HMWIs to be accepted for buy to let mortgage applications as well. Property is one of the leading sources of income for HNWIs (ONS, 2020) and lenders would not be maximising their profits if they were turning down applicants because of the complex income structures indicative of HNWIs. This does happen though, which is why using an expert from Active’s HNWI team is recommended. We can leverage an existing property portfolio to maximise its security level for the next buy to let mortgage. Mortgage repayments will be covered by the rental income so although it is speculative, with evidence of similar properties and their ability to be rented and through the use of contracts, an HNWI can prove their income that way. The team at Active has extensive experience in this field and are able to help secure a buy to let mortgage for HNWIs in ways that many other mortgage advisers may not be.

Most start-up businesses don’t get past the 2-year trading mark, lack of knowledge, experience and most importantly cash are some of the causes. This can lead to financial difficulties for entrepreneurs who are setting up new businesses all the time to grow their portfolio. Depending on the required investment and the extent of business debt, this can lead to a number of business owners filing for bankruptcy as a result of business failure. This subsequently leads to many otherwise successful business owners having bad credit and this adds yet another level of complexity to future borrowing ventures. Entrepreneurs will need start-up capital and if they have bad credit they may struggle to do so, despite having successful businesses elsewhere which are separate to these failed start-ups. It might be considered unlikely that a HNWI would have bad credit, but as mentioned wealth can be tied up in assets that can not be sold off easily (or may not want to be), if they then default on repayments their credit history may be affected. However, like any other HNWI mortgage application there are solutions available even if you have bad credit, solutions which consider your assets and use that capital to form your security for a mortgage or loan.

Whilst it has been established above that HNWI’s have a hard time sometimes securing a mortgage due to their complex income streams, hope is not all lost. There are mortgage lenders out there that offer HNWI asset-based loans, which create an income stream that a lender can then secure the mortgage against. This gives HNWIs access to mortgages, which they have traditionally struggled to get.

The size and value of an asset-backed mortgage, of course, depend on the value of the assets and how they become depleted. This is, again, a complex mortgage, so not all high street mortgage lenders will offer these types of loans. With added complexity, comes higher risk for the banks and they shy away typically from risk, especially with the 2008 crisis still burnt into their memories.

Ultimately, it is not too dissimilar to what is required from an individual looking to apply for a standard mortgage, it just requires more of it. The best way to prepare for a mortgage application, as an Active adviser will go through with you, is to prepare as much as you can before the phone call with our mortgage adviser. Make sure you have records from your current accounts, saving accounts, credit cards etc as normal but then you need to have any other financial records of income that you might be receiving, e.g. pension schemes, dividends, trusts etc. You should also have a record of your assets as well. You are proving your wealth to the adviser who in turn will do so to a bank so the more prepared you are, the more likely that you are going to be approved for a mortgage.

Active are proactive for HNWIs

Active works with a number of lenders who specialise in large mortgage loans and those specialising in asset-backed mortgages. Finding a mortgage adviser that understands the complexities for wealthy clients securing a mortgage, is vital if they want to get the best deal possible. Active will save borrowers time going from lender to lender, trying to find a bank who will be flexible in their requirements to suit the HNWI’s needs. Active’s proactive approach is our USP, we are working with these lenders, before the client even requests it because we want to have all available options and information at our fingertips, ready for your call.

Active has a specialist team that deals with wealthy clients every day, their flexible approach sets them apart from a standard mortgage adviser, who might not have the experience, knowledge nor adaptability to find the right deals or even a company who will lend to persons considered to have a high net worth. Large mortgage loans and mortgages for those with a high net worth are so often considered complex and tricky, we like to think of them as challenging yet satisfying when we can come up with a solution that meets the needs of our wealthy clients. Active’s team understands how an HNWI can utilise and leverage their portfolio of issues to satisfy the security needs of a mortgage lender.

If you don’t fit the mould, if your wealth means that a high street lender will not even review your application, if the house you want to buy is worth more than £1,000,000 contact Active. The specialist HNWI team is here to help your property dreams happen. Get in touch today, we thrive on a challenge.

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