It’s important to remember that most high-net-worth individuals typically have a range of income streams that are not commonly featured on regular mortgage applications. In this article, we’ll explore what a high-net-worth mortgage is and what options are available when exploring high-value loan options.
What do banks classify as high-net-worth?
Depending on the lender, high-net-worth criteria can vary. Typically, the high-net-worth mortgage market uses the following threshold which matches the regulator’s requirements for clients to be classed as high-net-worth individuals, and so to be eligible for what is known as a high-net-worth exemption, whereby standard affordability requirements do not have to be met in some circumstances:
At least one applicant must have one of the following:
- £300,000 annual income
- Or, £3 million+ in assets
Additionally, lenders look at your application favourably if your annual income is net of tax if it’s salary. If you’re a business owner intending to use the net profits on your company, then allow a little more in the pot before taking your salary and dividends.
In an ideal world, your £3 million of assets should be fairly liquid and need to be able to realise their full value reasonably quickly without needing a drawn-out sale or bidding process.
An obstacle that clients often face is that the income or total wealth listed above cannot be shared between a couple, it must be on an individual basis. For example, if you and your partner each earn £275,000 per year, you won’t qualify as high-net-worth clients. One person needs to be earning in excess of £300,000 per year. The same goes for £3 million in assets, this wealth cannot be combined.
What is a high-net-worth mortgage?
High-net-worth mortgages are specialist mortgage products created for clients that fit the high-net-worth criteria, with a large amount of wealth. Some high-net-worth Individuals can qualify for large-value property finance through high-street lenders, but often high-net-worth require large mortgages from private banks. These mortgages will often look at a more holistic overview of a client’s wealth when assessing how much can be borrowed.
What are the different types of high-net-worth mortgages?
High-net-worth mortgages have a range of product types to help cater for different client situations. This is in addition to the bespoke products specifically underwritten in certain client circumstances. Here we’ll list some examples:
Complex Income Mortgages
High-net-worth individuals usually have a range of income streams that aren’t commonly featured on standard mortgage applications. This can range from dividends to stocks and investment returns. Using our expert advisers, we can help you navigate tax returns, business accounts and foreign currency income streams to ensure we maximise affordability. Here’s an example of a client’s non-standard income that we have previously found finance for:
- Bonuses and commission
- Contractor income
- Dividends from stocks and shares
- Foreign currency earnings
- Rental income
- A combination of multiple income sources
In certain situations, it may be not easy to validate some of the sources of these income types. For example, you may be asked to provide documents in another language, however at LDN our advisers have a wealth of experience in handling applications of this nature. We’ll work with your accountants and lawyers to liaise with the lender ensuring your income is verified and fully leveraged towards your high-value loan.
Another type of high-net-worth client profile we see is self-employed income streams. Many business owners or clients in receipt of ad hoc income require a bespoke facility for loan repayment.
High value interest-only mortgages
A high value interest only mortgage is a fantastic solution for clients who are looking to use large assets, investments or income as security against the mortgage loan.
Typically, this type of mortgage loan is a good choice if you want to use these assets later in the loan term, perhaps by liquidating them further down the line as future income.
At LDN Finance we find this option to be popular with high-net-worth individuals because it allows you to minimise the initial monthly payments through an interest-only structure. If secured, you’ll only be required to pay back the interest amount on the loan. No repayment is required to reduce the overall borrowed mortgage amount.
Dry lending is a bespoke debt facility created with the property asset as the sole security to the bank, mitigating the requirement for a client to place their assets under management to the same private bank as the one financing the loan.
Traditionally, private banks have required high-net-worth individuals to move significant assets under the bank’s management (assets under management). This ensures security and wider relationship planning. However, more and more clients are opting for alternative solutions, and dry lending offers that alternative.
Dry Lending is the provision of a high-value mortgage loan, without the conditional migration of other assets or AUM to the same private bank as the one financing the loan. Your global wealth position including assets & liabilities will be taken into consideration during the credit underwriting process however the key factor is that you can retain your assets elsewhere.
Securities-backed lending is a fixed loan secured against liquid assets. This includes equities, bonds or investment funds.
For high-net-worth individuals or private clients looking to reduce capital risk, or snap up the opportunity on a new property purchase, securities-backed lending is a fantastic option for clients exploring the options of a fixed loan. Using your liquid assets as collateral can result in no reduction of your capital or forecast returns. In pledging your securities as collateral, a lender will advance a line of credit to you.
Some lenders may place a cap on the loan-to-value (LTV) available, for example, some private banks cap at 60% LTV. But if you have publicly listed stock with high trading volumes in your portfolio, you may reach a maximum LTV of up to 80%.
How can a broker help you get a high-net-worth mortgage?
At LDN Finance we understand that high-net-worth individuals often have little time to spare and complex income streams that may not fit standard criteria requirements. That’s where the value of a mortgage adviser can really pay off.
Private client mortgage brokers and high-value loan advisers have a wealth of connections in the private banking and bespoke lending arena, as well as vast experience with complex and bespoke facilities. As advisers, we also have access to off-market options that you won’t be able to access directly.
Eager to learn more? We encourage you to get in touch with our expert advisers where we’ll be able to offer you a snapshot of what’s available, whilst delving deeper into the most suitable solution. Call 020 3903 9875 or get in touch.