"It’s all about getting the balance right between innovation and controls."
FR: As a private bank, how do you differ from other high street lenders and what can you offer both advisers and clients?
Private banks used to suffer from a reputation of being elitist and only for the landed gentry, but I’m delighted to report that a lot has changed in recent years! We offer a specialist service for high net worth individuals, whoever they may be. Typical clients include finance professionals, company directors, business owners, consultants, sport and entertainment celebrities, creatives, technology specialists… the list goes on.
As far as mortgages are concerned, we lend on residential and buy-to-let properties located here in the UK, to both UK and foreign nationals. We require applicants to have minimum yearly earnings of £300,000 and a net worth of £3million and we’ll typically lend from £1m to £10million.
Clients benefit from their own dedicated private banker who will assess their application and construct a bespoke deal that meets their exact requirements. No two deals are ever the same and we’re very used to dealing with individuals with complex financial circumstances.
For mortgage advisers who deal with high net worth clients, our service will make their lives a lot easier. The reality is that many high street banks and building societies have maximum loan amounts that will preclude their clients from getting a large loan and even if the amount to be borrowed is within criteria, then the borrower’s circumstances may rule them out. For example, we regularly lend to foreign nationals living and working in the UK who receive part of their income or bonus in a foreign currency. Most lenders would automatically decline an application from such a borrower, because they would classify the deal as a foreign currency loan, which they won’t accept.
It’s a case of horses for courses. We understand and can cater for the specific needs of high net worth borrowers.
FR: How is technology improving the financial services industry and what developments do you expect to see over the next 12 months?
It goes without saying that technology has transformed the financial services industry and will inevitably continue to do so in the future. Finance is a product perfectly suited to technology. In the intermediary mortgage market, technology is a great enabler, allowing brokers to source, submit and track applications with far greater ease than they have ever been able to do so in the past. Investec Private Bank, like most other financial institutions, is continuing to invest in the very latest cutting-edge technology, but we’re also mindful that, above all else, mortgage broking is a people business and that both brokers and their clients want access to experts who can help them through the mortgage application process. We firmly believe that having the support of a private banker is every bit as important as the technology we develop to facilitate the application process.
In the future, technology will inevitably make processes faster and easier and integration will be a big focus, with different systems being able to integrate and communicate more effectively with each other. In the world of finance, it’s difficult to think of anywhere where technology won’t have a critical role to play.
FR: Alex Brazier, Executive Director of Financial Stability at the Bank of England, recently said that boundaries are being pushed in mortgage lending, warning that the industry could be entering a "spiral of complacency" due to low prices and loosened lending criteria – do you agree with his remarks?
I think most lenders are well aware of the dangers of making the same mistakes twice. Regulation is now a lot tighter and the degree of regulatory supervision is a lot closer than it ever was in the past.
Yes, there are risks, but that’s the nature of the business that mortgage lenders are in. Rising interest rates and inflation will put pressure on household incomes and lenders will be watching for stresses amongst their borrowers. We’ve been through a period of very low levels of arrears and repossessions, but no one is under the illusion that it will last forever.
There is also a danger, however, that lenders stop innovating because of a fear of getting it wrong or unintended consequences. I believe that one of the great strengths of UK financial institutions is their ability to innovate and we need to embrace that. The right regulatory regime is now in place to ensure all lending is undertaken responsibility with due regard to borrowers income and affordability and no lenders should be granting loans to those who cannot afford to repay them.
It’s all about getting the balance right between innovation and controls.
FR: How do you foresee Brexit continuing to affect financial services in the coming months?
Not a lot! There’s so much hysteria about Brexit at the moment, with people blaming it for pretty much anything and everything! The reality is that there’s a lot of negotiating to take place before a true picture starts to emerge of what Brexit will actually mean for us all.
My view is that until we reach that point, we should just get on with business as usual. Sure, there will be concerns about how Brexit will affect the economy and our future prosperity, but what’s the point of worrying about something that hasn’t yet been agreed?
FR: What are the biggest issues facing advisers in the current economic environment and what should they be aware of when dealing with clients?
We’ve lived through an unprecedented period of low interest rates. The last time Bank Base rate was more than 1% was in 2009 and the last time it was more than 6% was in 1998. We now have a generation of borrowers who have never experienced high interest rates or even rising interest rates.
When rates do eventually start to rise, it will come as a shock to many, even though the increases are likely to be small and gradual. To compound the problem rising inflation and stagnant pay growth will put real pressure on the pound in many peoples pockets and it therefore makes very good sense to stress test a borrower’s ability to afford their mortgage, not just now but also in the future.
We also live in an uncertain world and it’s impossible to know what global factors could impact the UK economy. As the old saying goes: ‘prepare for the worst and hope for the best’!
FR: If you could see any headline about financial services in 2017, what would it be?
'Financial services industry voted peoples choice for best service!'
