High Net Worth Mortgages
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High Net Worth Mortgages
Richard Campo shares his expertise on high net worth mortgages.
How does a high net worth mortgage work?
There are three ways in which a high net worth mortgage could work. The first would be what I call a traditional mortgage: if you’re a high net worth individual with a good income you can probably get a standard mortgage – where you prove your income whether you’re self-employed or employed.
A second way might be asset backed, which is fairly common in this area. Perhaps you were a business owner and you sold that business or an interest in a business. You received a lot of cash and converted that into stocks or shares and have a portfolio. If you want to buy a property without liquidating those stocks, you allow the bank to take charge of the stock portfolio and give you the cash to buy the property. You can do that with other properties, stocks and interests in other businesses as well, depending on the bank.
The third option is escrow or forward funding. This applies in a situation where your income isn’t clear. Again, perhaps you’ve exited a business – you’ve got a lot of money but no income. Here, you can put a few years worth of payments and interest down for the loan and forward fund it that way.
Why are mortgages for high net worth individuals so difficult?
My job is to make it simple. There’s over 150 private banks in the UK alone and what sits behind lending is quite complicated.
It can be difficult if you don’t understand high net worth individuals, with a more complex income and who may be internationally mobile.
One thing that comes up time and time again is ‘origin of wealth’. If you sold a business, it is simple, but if your money has passed down through family, it can be very difficult to ascertain the source of wealth and that’s where a lot of people come unstuck.
Our value as a broker is to simplify it for you. We’ll sit down with each client and explore what they want to do and how they want to achieve it.
Getting a mortgage is only difficult if you don’t know what you’re doing. It’s our job to navigate this for our clients and make it easy for them.
How much is considered high net worth?
A few years ago the FCA came up with a high net worth definition, which is where you earn over £300,000 or have over £3million worth of net assets. Once you reach this level the usual affordability rules don’t apply – which is really helpful.
A lot of banks position themselves in that space now, offering loans of £1million to £2million.
High street banks tend to stop at around this range – although we did do a £7million loan with one last year.
This is mainly the preserve of private banks for the reason that it’s more complicated to deliver bespoke borrowing. High street banks don’t have the capacity for a private banker to sit with clients for days to figure out all the details.
Who qualifies as high net worth?
It’s not the same for every bank and every client. Even if you don’t quite tick the high net worth boxes, if you’re quite young and earning over £100,000, banks are likely to want to accommodate you.
If you’re a high earning young person, whether it be because you started your own business or you’re just doing well in your career, you will find that banks will be very amenable to you. We’re finding that all the time, with so many influencers and entrepreneurs around today.
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How much can I borrow and what sort of deposit do I need with a high net worth mortgage?
If you hit that high net worth definition, there’s no limitations. All borrowing comes down to three things: Collateral, Capacity and Commitment.
A broker will sit down with you and see what’s affordable and what makes sense for you. With high net worth clients there’s often a ‘liquidity event.’ One client I helped was two years into a five year earnout, because a bigger company was going to buy his business at the end of year five. He got a huge payout.
The bank was happy to lend them money for three years because they knew he would clear the loan in the end. Your mortgage will be designed in line with what makes sense.
Private banks are often better to work with because they often understand certain market sectors. They can be very flexible. Basically, if a standard, traditional mortgage is not ticking the boxes for you, talk to us. We’ve not had a client we can’t place yet.
Do high net worth individuals need life insurance?
I would say everyone does. There are only two certainties in life – death and taxes. Whether you’re borrowing £100,000 or £10million, the dynamic’s the same. It’s a debt, something that needs to be taken care of. You probably have a few family members you want to think about too.
It’s never a fun topic, but it’s a reality and a crucial part of the advice process. Let’s say you are very asset rich – which is a wonderful position to be in. But if you were to pass away, do you want your wealth to go to a bank or to your family? We would much rather put more money into our family’s pockets than pay off a mortgage. That’s the principle we run to.
Can you get a mortgage on a million pound house?
With million pound houses or any high value property, it gets more complicated. What you often find is that properties are listed, so there are restrictions. It might have been built on land that was previously agricultural and there are covenants restricting the types of animals you can have, so as not to compete with your neighbour. You might need more specialist insurers. We work with expert providers for this area.
But it’s interesting because people don’t know about agricultural restrictions. They might buy a piece of land, thinking it’s nice and cheap, that they can do what they like… but you might not get planning permission. So if you are looking at doing that, please do speak to an expert.
What does a large mortgage loan mean?
A large loan for us would really be £1million plus. In terms of lenders, what you might find is that if you’re borrowing above £750,000, most high street banks have a specialist team you will deal with. A lot of UK banks also have a private arm – such as Barclays Wealth, HSBC Private Bank etc.
Private banks have become the norm for lending over £2million for all the reasons we touched on – generally that your situation is likely to be a bit more complicated.
How can a broker help?
High net worth is a complicated area that we deal with a lot. Something that a lot of clients don’t realise is that even if you’ve been with your own bank for years, they have to treat you as a new borrower, irrespective of your banking relationship.
You might have been very successful – created a business, sold a business, been a really high earner, have all kinds of investments…but most high street banks just don’t recognise those situations and will say they can’t help you.
Before even talking to your bank, speak to a broker. It will save you a lot of time. Even if you are with a private bank already, we can often negotiate your terms down. As a broker we work for the client – we don’t work for the bank.
A lot of banks we prefer to work with are for ‘dry lending’. Say you want to borrow £2million they give you a loan, you pay it back with interest… all done. But a lot of private banks insist on ‘assets under management’ which can be way more flexible.
Instead of a bank wanting £200,000 on deposit before they even talk to you, we can either reduce that amount down or get it waived entirely. A lot of clients don’t want to move assets around to get a mortgage. So speak to us. Let us look at your preferences and requirements and we can explain to you how best to achieve them.
If you’ve ever seen the film The Wolf of Wall Street, where he meets with a Swiss banker – it’s all negotiation. If you want to play that game fine – but if you’ve got better things to do with your time, we can get you there a lot quicker.
Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.