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Why HNW Mortgages Are More Complicated Than They Seem

by internationaldirector

By Alpa Bhakta, CEO, Butterfield Mortgages Limited





It might be counter‐intuitive to many, but securing credit as a high net‐worth (HNW) individual can be extremely complicated.

Indeed, it is a common misconception that banks will readily––happily, even––loan money to those who have a net‐worth in the millions. However, this is often not the case, particularly in the mortgage industry.

The issue stems from the fact that HNW borrowers are rarely the same, and the variety they present in terms of their financial profiles is a cause for difficulty and concern among some lenders, which in turn can lead to even the wealthiest members of society being turned down for mortgages.

But in what ways do HNWs present challenges to lenders, and what are the main factors that result in even super‐rich property buyers being regularly rejected for mortgages?

Conventional lenders retreating

We must begin with the lenders themselves.

It is more than ten years since the onset of the global financial crisis, and among the many lasting effects of the economic downturn was a notable regulatory shift in the mortgage space, which has impacted as much on HNW individuals as it has first‐time buyers.

Over recent years there have been numerous changes to mortgage regulation, including the “Mortgage Market Review” in 2014 and “Mortgage Credit Directive” in 2016. The result, in short, has been the application of a more stringent, turgid approach to deciding who qualifies for a mortgage.

For reasons that are outlined below, wealthy borrowers––who often do not match the tick‐ box methods used by mainstream mortgage providers––have been among those who now struggle to access credit from bigger conventional lenders.

Reasons for their property purchases

Shifting the focus on to the borrowers, one of the initial challenges of providing a mortgage to a HNW individual is that the property he or she is buying is seldom going to be his or her sole residence. In fact, it is often not even going to be a primary residence and the borrower may have no intention of ever living in it at all.

There are many reasons why a HNW individual might buy a property: it could be used as a holiday home, somewhere for children to live, or a buy‐to‐let investment, to name but a few of the more common motives. However, this can immediately deter mortgage providers, some of whom are hesitant to work with clients purchasing houses or flats that will be used for a purpose other than a primary residence.

Understanding the reasoning behind the property purchase is, therefore, important for lenders and brokers alike. A lack of transparency from the borrower can be an issue, but typically it is a question of approaching a suitable mortgage provider who has experience working with wealthy individuals who are buying properties for any number of reasons.

Irregular sources of incomes

The next challenge for HNW borrowers is their income. Specifically, they may have irregular– –or perhaps, even, non‐existent––sources of income.

For some lenders, including many high‐street banks, if individuals are not able to prove that they have a regular income then they will promptly be turned away for a mortgage. Typically the wealthier someone is, the more complicated his or her finances become, and a monthly paycheque can prove increasingly rare.

Specialist lenders who have experience working with HNW clients understand the importance of carefully considering borrowers’ unique personal circumstances. This involves investing time into uncovering the assets they own, the money they have access to, the incomes they receive and why they require the loan.

Understanding the individual

Importantly, it is wrong to assume that a wealthy person would not need a mortgage. Certainly, there are several different factors that can motivate a HNW individual to seek a mortgage.

Some own significant assets but lack access to the upfront capital needed to buy a multi‐ million pound property, while others want to maintain their liquidity rather than investing it all into a real estate purchase.

Going further, there are other issues relating to the financial make‐up of a HNW individual that can make getting a mortgage complicated. For example, the individual’s assets could be held inside trusts and other structures. Alternatively, investments could be spread across numerous territories, which adds a further challenge for lenders who are not well versed in issuing mortgages to such individuals.

Mortgage providers who work with HNW clients and their brokers understand these nuances; that is what makes them specialists in the market.

From individuals’ sources of income and financial make‐up through to their motivation for securing financing and their reasons for buying property, lenders operating in the HNW space must take time to understand borrowers. They must then apply their experience and expertise to deliver loans in a timely manner. That is why HNW mortgages almost always require a bespoke approach and a team of professionals who have a deep appreciation of how to work with such clients.

The banking landscape has changed in the past ten years, with challenger banks and fintech startups disrupting the status quo. But the challenge of getting a mortgage as a HNW individual is more pronounced than ever; and while it may surprise some people that even the super‐rich can be turned away for credit, it is the role of expert mortgage providers to ensure this area of the property market receives the support it requires.

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