When looking at arranging a large mortgage, and for the purpose of this blog, we will define a large loan of £1m+, you start to run up against more complex considerations that simply just arranging a mortgage.
At this level, things get more complex – some banks set a ceiling on what they will offer, incomes are more complex, the structure of the mortgage requires more thought, properties can become nonstandard and being internationally mobile is often the norm.
This is a recipe for headaches when arranging a large mortgage if you don’t know where to look. So below are some key areas of consideration and also a reminder that engaging a mortgage broker as early as possible won’t just save you money, it will save you a hell of a lot of time and headaches when your energies could and should be spent elsewhere.
Which Banks should I look at?
The natural first step when looking at arranging a large mortgage is often talking to your bank, and by all means try that (assuming you can actually talk to a bank adviser in these post-Covid days), but you often find the adviser is out of their depth at this level or the process can be prohibitively tortuous.
Mortgage Brokers understand that your time is valuable so we look to minimise your involvement, so we can maximise working on your behalf. When talking to High Street banks directly, they don’t quite get that, as they are often more process than people driven. That is fine if you have the time to spare to endure the process and to give a trail of breadcrumbs to the adviser so they can get to the right outcome. But there is no getting away from it, that the process is time consuming, even if your situation is very straight forward and often doesn’t guarantee you will get the outcome you need. The loan may be too large for them or they may not understand your income or residency status.
For loans over £2m it may be a necessity to use a Private Bank when arranging a large mortgage of this value, as the High Street guys simply don’t offer loans above that level (that said, the largest loan we have done with a High Street Bank this year is £5.7m, so it can be done in certain circumstances).
When considering Private Banks, that is quite a complex world, and the downside is you often have to deal with a Private Banker which reminds me of the scene in the Wolf of Wall Street. (Huge risk warning in that this is not how business is done, except the prerequisite 10 mins of “chit-chat”, which is borderline mandatory).
When considering Private Banks is all about mapping the right client, to the right bank. So on a simple level, and using the Wolf of Wall Street example, if we are dealing with a Swiss Resident, it makes sense to talk to a Swiss bank as most large Private banks have a London Office (for now at least…).
Matching the profession to the Bank is also key, some Banks are really good with Entrepreneurs, others with Elite Athletes, others in the Entertainment world etc. But it can go very wrong trying to put even a high profile Actor to a Bank that prefers Business Owners. Think square pegs, round holes. It doesn’t mean the client isn’t an excellent prospect, but that shape doesn’t fit that hole. So we look to match the best shapes to remove friction. Certain banks simply do not deal with certain professions or jurisdictions.
As I say, it is a complex world, so to try to go it alone to arrange a large mortgage can be a very time consuming task of meeting with various banks, only to be let down or referred elsewhere at the last moment. Not a good experience. Brokers do the legwork and can do it, if not in hours, certainly days.
How is my income assessed?
Post-Covid much has changed when assessing incomes and so this is affecting the often complex circumstances of arranging a large mortgage. It’s notable that the case above was agreed pre-lockdown.
Most high street banks now are not including ‘variable’ income, so things like bonuses and commission, EVEN if they are being paid.
You can argue all you like about the fairness of that but at the end of the day, banks can choose who they tend to, it doesn’t have to be logical.
Also the amount of loans on offer have reduced. Pre-lockdown, both Santander & Barclays were offering loans of 5.5x the basic income and Barclays could also include 100% of the bonus in that calculation, whereas now both have reduced to 4.5x income and will only use a bonus if they deem it sustainable.
So in a simple example, if you have a £100k basic salary and £100k bonus (that had been paid the past 2 years at that level), pre-lockdown Barclays would have offered you a loan of £1.1m. Today, that could be as low as £450k if they deem the bonus isn’t sustainable (which is often linked to the sector, not the individual’s performance).
Your own business
That issue is exacerbated if you run your own business and are looking to arrange a large mortgage.
Most high street banks now want to see Business Bank Statements before approving a loan. Again, this creates some Catch 22 issues as underwriters are not accountants and who is to say your turnover reflects your profit.
For example, a business’s turnover may be down 20% post-Covid, but they could have cut overheads which maintains or even increases their profitability. Simply looking at the income received into a business bank account will not reflect that. Also if you work in what is deemed a ‘high risk’ sector such as hospitality or entertainment you may get a flat decline as the lender simply isn’t offering loans in that area right now.
The last main hurdle we see in larger loans is being paid in non-Sterling income. Again, lenders simply do, or do not accept this and a good mortgage adviser will know that at the outset.
Again, the larger the loan, the more likely this is, so you find it quite self-fulfilling that the lenders you want to be talking to are the ones that understand this. Most apply a ‘haircut’ of between 15-20% to account for currency fluctuations, but assuming that still gives you enough disposable income to support the loan, you shouldn’t find this a major issue.
As ever, there are ways past these hurdles and a good mortgage broker can navigate the way. We have many examples of helping clients in these situations, just read our Case Studies.
This is also where Private Banks can often be a better home for larger loans at present, as they look at the individual, their track record and overall profile before deciding to lend. Private Banks are more in tune with taking risk by their very nature so are more open to people with more complex situations as that is what they have always done.
What if I have spent time out of the UK?
Very rarely is this an issue. Most people maintain a fairly good ‘credit footprint’ even while working abroad. Such as maintaining UK Bank accounts/credit cards/mortgages. Or registering all their affairs at a relative’s address.
Some lenders do have strict rules around being in the UK for 2-3 years before applying, some have none whatsoever, it is purely down to the credit score. This is why a good mortgage broker will start by looking at the clients credit file, seeing what data is available and then matching to the right bank.
Doing needless credit searches with banks to try and get one to agree the loan damages a client’s credit score. So if you ask for the information you need up front, as any good broker will, that negates that problem and again, saves you a lot of time going around the houses.
What if I am not resident in the UK anymore/never have been?
Again, not a major issue to the right lenders and see above for a good technique in mapping the right client, to the right bank, based on where they both have a ‘footprint’.
A word of caution though in that most the high street banks do start to struggle when you combine large loans with non-UK residents/nationals. So this is where we may look at more International Lenders or Private Banks.
Oddly, small building societies have carved a niche in this area as they have the ability to manually underwrite and are happy with the risk appetite when arranging a large mortgage. So if you are in this area, and end up with a lender that sounds like a town from Lord of The Rings (such favourites as Market Harborough, Harpenden & the mighty Tipton & Coseley) that is no bad thing!
Do I have to buy the property or can my Trust?
Short answer is yes. You don’t have to buy the property in your own name, it can be in another entity or vehicle. There are large tax implications in doing/not doing this, so we always recommend that you get specialist tax advice before proceeding. We have people we can refer you to, or you can find your own. Depending on the outcome of that, we can then decide on the best lender to work with based on the structure you have been advised to use.
Much to think about when arranging a large mortgage
So as you can see, a lot more to think about when arranging larger loans. As you would suspect, we do think we are one of the better firms in this area and that isn’t just us saying it, that is why we have such excellent reviews. Please don’t take my word for it and check them out. If you would like to speak to one of the team, their diaries are synced to our website and are ready and waiting to talk to you.