High Net Worth Mortgage
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High Net Worth Mortgages
David Walsh explains the challenges and opportunities of high net worth mortgages.
How does a high net worth mortgage work? What are my options?
It works fairly similarly to any other sort of mortgage. Lenders have to be responsible in their lending and the Financial Conduct Authority (FCA) sets out parameters within which they have to work.
That’s why banks conduct affordability assessments, to make sure you could actually service the mortgage payments each month. They look at what you have coming in versus what is going out. That’s the same across the board, no matter how much you’re borrowing, so it does apply to high net worth individuals.
In some instances, where we might be able to circumvent those requirements if you have significant assets in the background. Some lenders, rather than actually looking at your income, will look at your assets to evidence that you could maintain a level of borrowing.
It all comes down to the lenders making sure you could repay what you’re borrowing. Ultimately, if you don’t, your property may be repossessed, but a lender can’t just rely on that. They have a duty of care to you as a customer to make sure the loan is affordable – rather than resort to extreme measures to get their money back.
Why are mortgages for high net worth individuals difficult?
I don’t think they are more difficult. If you’re a high net worth individual, you will probably need to provide more information so that lenders could understand your overall position.
It’s not so much difficult as complex. A high net worth individual is likely to have more going on in terms of assets and background, as well as potential liabilities. It might just be a bit more work to evidence your personal situation.
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What is considered high net worth? Who qualifies as high net worth?
HMRC’s definition of high net worth is anyone with assets in excess of £10 million, but that’s just one definition. Every lender has their own criteria as to what they consider higher lending.
Most of them will have their own ‘large loans’ team within the bank for higher value borrowing. For most of them, loans above £1 million would fall into that category.
Most people look at a rough definition of income over £300,000 or assets over £3 million as high net worth. For the purpose of mortgages, high net worth may mean anything, really.
Private banks don’t start offering loans until you get to £1 million plus. With them, we could do anything up to £20 million in borrowing as ‘standard’ cases, and beyond that they will be assessed on a case-by-case basis.
Most high-street banks do large lending up to around £7.5 million with a 25% deposit. They will often go beyond if you could get a 35% deposit together.
What deposit is needed for a high net worth individual?
Generally, the more you’re borrowing, the larger the deposit you’ll need. It all comes down to risk for the lender, and larger loans are obviously higher risk to them. Multiple £500,000 loans will be less risky than one £5 million loan – it spreads that risk.
For higher risk borrowing, lenders want a bigger deposit to provide more of a buffer. If you default on the mortgage for whatever reason and they need to sell that property to get their money back, that deposit gives them flexibility on the selling price.
Even if the property drops in value, they’re still going to get back what they put into it. That’s why there are generally larger deposit sizes. However, there are some good propositions from high street banks. NatWest, for example, will do loans up to £2.55 million with a 15% deposit, and Santander does £2 million with 15% [podcast recorded in June 2024].
Other lenders will also give quite large loans with fairly small deposits. If you’ve got a 25% deposit, we could find mortgages of up to £7.5 million.
The rates are also determined by the level of deposit you put in. They’ll typically change once you get to 25% and then again at 40% deposit. You don’t necessarily have to put in that much, but you might find beneficial rates if you do.
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How much can I borrow on a high net worth mortgage?
It’s largely down to affordability again. What you could borrow depends on the level of income we are able to evidence. You might be a high earner, or you might receive income from assets or investments in the background.
We could look at utilising multiple sources of income, but ultimately we’re still looking at the same thing – whether you could afford to borrow what you want to.
Lenders will look at maximum multiples of income and affordability, comparing income versus outgoings. It all comes down to individual circumstances and the income we could evidence against your ongoing financial commitments.
Do high net worth individuals need life insurance?
I would suggest that everyone needs life insurance. A mortgage is a significant level of debt that you won’t want to leave to your next of kin. Whenever we set up a mortgage, we’ll always invite clients to look at life insurance and other forms of protection.
It’s not a lender requirement. As brutal as it sounds, they could always take the property back. But from your own point of view, and in my opinion, it’s definitely something you need to have in place.
How does remortgaging as a high net worth individual work?
Remortgaging is similar to buying, and again, it’s all down to income versus outgoings.
With remortgaging, you always have two options. You could refinance to a new lender, where you’re essentially taking one loan to pay off your existing loan, or you could just switch to a new product with your existing lender.
Staying with the same lender makes it quite a straightforward process. There’s no valuation requirement, no underwriting and no need for a conveyancer to get involved. Moving to a new lender involves a full underwrite, valuation, and a conveyancer to handle the transfer of the legal charge from one lender to another.
If your circumstances have changed from when you bought the property, and perhaps you’re earning less or your outgoings are higher, you can’t necessarily borrow as much as you need. You may have to stick with the same lender and just take a new product from them.
Remortgaging could be more straightforward than buying, but ultimately it’s the same criteria and requirements. With a new lender, it’s treated as a new loan and assessed as such. Whether you’re high net worth or not, the same checks need to be done.
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Can I get a mortgage if I have bad credit as a high net worth individual?
High street banks and mainstream lenders often have automated credit scoring models. They’ll run a credit search in the background using one of the three major referencing agencies, and then make a judgement on you as a potential borrower.
It depends how bad the credit situation is. You might have had a slight delay in paying a credit card or you might have been declared bankrupt. There’s a very wide range. If you’re declined by mainstream banks that do an automated check, other banks might have more leeway to assess the situation.
They will find out what happened, if there are mitigating circumstances and potentially look beyond it. Lenders will often look at high net worth clients on more of an individual basis – it won’t just be a computer spitting out an answer. There is a bit more discretion from the underwriters to what they will and won’t accept.
How can a mortgage broker help a high net worth individual?
Mortgage brokers have a good range of lenders to approach and in-depth knowledge of criteria. While going to your own bank and seeing what they could lend you is a starting point, that’s just one option.
Going to a broker gives you a better understanding of what the rest of the market will offer. We know what lenders will and won’t do. We could quickly filter it down to who we could potentially use for your situation.
High net worth individuals tend to bring a bit more complexity, with a few more moving parts. It’s about having connections within those lenders to get a quick answer on what’s possible. We have direct contact with underwriters in large loans teams within the high street banks.
We also have contacts at private banks, so we could have a conversation about the basics of a case to understand if it’s worth pursuing. An individual has to go through quite a long winded process to actually get in front of someone who could make a decision. So a broker with these contacts could save a lot of time and effort.
My general policy on high net worth borrowing is that if we could place you on the high street, we should. High street banks have better rates. There are some benefits to private banks if you’re an existing customer, for example, and they’re familiar with your circumstances. But generally speaking it’s not too onerous to get you onboarded with a new lender. We tend to only go to a specialist if we can’t do it on the high street.
PLEASE NOTE: YOUR HOME MAY BE REPOSSESSED IF YOU DO NOT KEEP UP WITH YOUR MORTGAGE REPAYMENTS.
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