Big income, big mortgage

14th June 2017
"Borrowers often have complex income structures and can also have bonus and share option schemes in place that are significantly more valuable than their core salary."

You would be forgiven for believing that people with big incomes probably require modest or even no mortgage funding.

However, contrary to popular belief, a large percentage of high net worth borrowers do require mortgages, usually because their wealth is tied-up in investments and other assets that either can’t be easily accessed or are being put to productive use.

At Investec Private Banking, for example, our typical borrowers have a salary of at least £300,000 and a net worth of approximately £3 million. For many, selling shares or assets to fund the acquisition of property is not an attractive option. They often prefer to apply for a mortgage and leave their existing assets intact.

The challenge for brokers serving the high net worth mortgage market is understanding the peculiarities of the borrowers they will be dealing with and the lenders who serve them.

Although there is a danger in generalising, borrowers often have complex income structures and can also have bonus and share option schemes in place that are significantly more valuable than their core salary. Business owners may also put greater emphasis on dividend payments than salary income. There is therefore a job of work to be done by brokers in being able to understand and present this information to a lender in a clear and concise way.

Which lender should that information be given to? The high net worth mortgage market has traditionally been served by specialist lenders, typically private banks. Yes, a number of high street banks are active in this market, but there are still only a relatively few lenders that have a real appetite for very large loans. Brokers therefore need to understand not only who those lenders are but also the key points of difference between them, especially as some of their mortgage products may not appear on sourcing systems.

With large loans, subtle criteria differences can often be critical and it’s also important to know which lenders have restrictions which may rule out your client altogether. For example, it’s not uncommon for private banks (but not Investec Private Banking, I’m pleased to report) to only lend to clients who already have assets being held under management by that bank.

Knowing which banks can help is therefore of paramount importance. If you only deal with the occasional large loan deal, it may be worth forging a relationship with a specialist broker who manages large loan applications on a more regular basis.

And let’s not forget the bottom line. A typical broker commission payment of 0.5% on a standard £200,000 mortgage is worth £1,000. On a £1m mortgage it’s worth £5,000 and I guarantee there’s not five times as much work involved!

So don’t think that high-income earners will be less likely to need mortgages. The opposite is often true.

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