High net worth individuals are those considered to have accumulated or acquired considerable wealth. Many of these individuals will find that ‘off the shelf’ mainstream mortgage products are not suitable or appropriate for their circumstances. Instead, they will need something more bespoke, such as the flexibility offered by a high net worth mortgage.
According to the UK’s Financial Conduct Authority (FCA), you meet the criteria for a high net worth mortgage if you have a personal income of more than £300,000 a year or if you have liquid assets of more than £3,000,000. These assets can include a variety of investments, as well as equity built up in residential property. Such individuals will generally benefit from a more tailored and personalised underwriting process and mortgage product.
Why can’t a high net worth individual take out a traditional mortgage?
Generally speaking, as a high net worth individual, you are likely to have a more complex structure to your finances. This often won’t fit comfortably within the standard mortgage underwriting criteria used by the main high street lenders.
Someone of high net worth is likely to have income from multiple sources. Some of this might be irregular and possibly obtained from inheritance and trusts, for example. For this reason, you are likely to need a more bespoke mortgage arrangement. This is usually with a lender that is willing to be more flexible and understanding of your finances.
Since the global financial crisis in 2008, mortgage underwriting requirements have become tighter. Being approved for a mortgage has become more of a challenge for some. This is even more true for those considered as high net worth. High street lenders will typically focus on an applicant’s ability to demonstrate a steady predictable income when assessing affordability. This may not be quite so straightforward for a high net worth individual. A more holistic approach may be needed to understand their income and financial structures.
When taking out a high net worth mortgage, you may have a need for greater flexibility, visibility and access to more significant finance. Most high street lenders in the UK offer mortgages of up to around £1 million. Anything above this is generally out of their comfort zone. They may also be more restrictive, placing limits on the maximum loan-to-value (LTV) on offer for larger loans.
Who offers high net worth mortgages?
Normal high street lenders will generally not be an appropriate fit for you as a high net worth individual. Most do not offer any real flexibility in underwriting, or in their mortgage facilities. Some high street lenders do have specialist departments set up to service the needs of high net worth customers. Typically, however, you will need to turn to private banks or specialist mortgage lenders. They have the expertise and flexibility required to fully meet the needs of such borrowers.
These private banks and specialist lenders can be difficult to come across. They generally don’t have a high street presence. It is recommended that you enlist the help of a high net worth mortgage advisor and broker. At Mortgage Light, we have access to the right lenders. Not only do we have the appropriate contact with lenders, but many of these lenders will only accept mortgage applications that have come through and been packaged by an experienced mortgage broker.
Here at Mortgage Light, we talk directly with the underwriters at specialist lenders and private banks on your behalf. We have experience of dealing with high net worth individuals and presenting their financial structures, such as family trusts, offshore investments and multi-currency income profiles to lenders and helping to negotiate bespoke mortgage facilities that are appropriate to their personal circumstances.
Why would a high net worth individual use a mortgage?
It may seem odd to some that if you have the financial resources to buy a property outright, that you would instead consider taking out a mortgage to support a property purchase. However, just because you may have the money to purchase a property outright, does not always mean that you should. Doing so may limit your liquidity for other possible investment opportunities and it may not make sense to tie up a large amount of capital in just one asset.
Diversifying your capital into a range of assets will not only spread risk but could generate an income stream that effectively pays your mortgage for you. Let’s say for example that you want to buy a house at a cost of £5m. You already have the capital available. Rather than committing all of your capital to that purchase, a better financial strategy might be to buy the house with a £4m high net worth mortgage and a £1m cash deposit. You can then use the remaining £4m of your capital to purchase some industrial units or investment properties.
The rental income generated from these investments could well cover your monthly high net worth mortgage costs. Then, at the end of the mortgage term, you will not only own your £5m house outright, but you will also own several investment properties providing you with an ongoing additional source of income.
As a high net worth individual, closely managing your money is important. At Mortgage Light, we understand that. What’s more, we understand how obtaining the right sort of high net worth mortgage can help you achieve some of your life ambitions and also provide you with the flexibility to make your wealth really work for you.
If you’d like to know more about how we can help, contact us today and we’ll put you in touch with one of our experts.