In this exclusive Q&A, Paul Welch, Founder and CEO of largemortgageloans.com, takes High Net Worth Individuals through what they need to know about the private client mortgage offering and other lending routes.
Largemortgageloans.com (LML) is a specialist adviser, facilitating financial solutions for High Net Worth global clients. Using a range of assets, LML secures large loans specially tailored to meet the complex lending needs of their clients.
Founder and CEO of largemortgageloans.com
Why would an affluent individual want to approach a private bank for their mortgage, rather than simply go to a High Street bank?
PW: It’s not uncommon for wealthy individuals to secure a loan or mortgage to buy a property as there are tangible benefits to doing this rather than paying cash up front. Sometimes, it’s a case of needing the funds relatively quickly should an individual’s wealth be tied up in assets, such as investments, art, cryptocurrency, cars or other properties which can be difficult to access quickly.
Liquidising existing assets means that individuals could be losing out on potential gains
In addition, liquidising existing assets means that individuals could be losing out on potential gains. By taking out a mortgage, affluent individuals can retain their current assets and continue to gain from them as they hopefully rise in worth. There are also tax benefits to borrowing for wealthy individuals, for example if there is a mortgage in place at the time of completion, this helps mitigate inheritance tax planning.
Who is the typical person who takes this route and what kind of problems do private banks solve?
PW: Most affluent people will find that private banks are the most amenable when seeking a mortgage. High street banks are criteria-led meaning they may have access to lower fees and rates but only for those borrowers who meet their affordability criteria. This relies on borrowers being able to prove their income, through pay slips and bank statements. However, many affluent people make their income through unconventional means – they may be self-employed, income may come from investment returns, or their net worth is tied up in valuable assets. This excludes them from meeting the affordability criteria insisted upon by mainstream lenders.
Private banks are more flexible in their approach as they have first-hand experience of HNWIs, and have substantial negotiating powers
Alternatively, private banks, are more flexible in their approach as they have first-hand experience of HNWIs, and have substantial negotiating powers. They can raise a large loan using existing assets as security (known as Lombard or margin lending), making the borrowing terms much more bespoke and accessible for HNWIs. Also, private banks look at the bigger picture, viewing HNWIs as valued clients with investment portfolios, cryptocurrencies and other assets to be managed. A mortgage is simply the first step towards a long-term, lucrative relationship between the two parties.
What kind of terms (rates and duration) can those going to private banks expect?
PW: The rates and terms offered by private banks are as individual as the borrower and their circumstances. Borrowers need to provide proof that they can repay the loan with interest, as per a traditional mortgage, but the difference with a private bank is that there is no typical rate, loan to value (LTV) or standard duration to repay. When raising a loan of £1m+ with a private bank, there are a number of factors which will impact the terms and rates offered but, most importantly, there is always a deal to be done.
When raising a loan of £1m+ with a private bank, there are a number of factors which will impact the terms and rates offered but, most importantly, there is always a deal to be done
In the first instance, it’s recommended that those looking to secure such a large mortgage speak to an experienced specialist broker. Not only will a broker be able to manage all of the complexities, but they will also have long-standing relationships with hundreds of private financiers from across most private banks and some boutique lenders, and so they will be able to negotiate a special deal. This is particularly significant if the borrower wishes to remain “incognito”, perhaps for security reasons or if they are well-known, as a specialist broker can be discreet when acting on their behalf.
Secondly, if affluent borrowers are able to place additional business, such as an investment portfolio or private pension, with a private bank then this will give them greater negotiating power to secure a more competitive rate.
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What other ways can private banks help with property purchases in addition to mortgages?
PW: For those HNWIs holding their wealth in assets, it’s not always possible to raise the cash needed to secure a deposit for a mortgage. In this case, private banks can provide Lombard or margin lending using the borrower’s existing assets (property portfolios, shares, cryptocurrency, supercars or yachts, for example) as collateral to secure a loan. The more liquid the asset, the more favourable the LTV and terms. Unlike a mortgage, a margin loan can be used to pay for anything, not just property – further investments, art, business expansion, property development, jets and so on. Margin loans are relatively low-cost and can be arranged quickly, making them an attractive way of raising bridging credit.
For those HNWIs holding their wealth in assets, it’s not always possible to raise the cash needed to secure a deposit for a mortgage. In this case, private banks can provide Lombard or margin lending using the borrower’s existing assets (property portfolios, shares, cryptocurrency, supercars or yachts, for example) as collateral to secure a loan
Private banks are also experienced at foreign currency lending, for those affluent overseas buyers who wish to invest in the UK property market.
There's been a real rise in equity release among wealthier property owners. What do you think of this option and how else could HNWIs look to access liquidity from their assets without taking this route?
PW: Equity release can be an attractive option for people who want to carry on living in their current property for the long term with the loan to be repaid when they either pass away or move permanently into a care home. With interest rates currently on the up though, equity release provides borrowers with a rate that is fixed for the lifetime of the loan which looks attractive in today’s market. There can also be inheritance tax advantages to arranging an equity release mortgage. Equity release reduces the total value of your estate, so by releasing equity affluent homeowners could help minimise their IHT liability, provided the funds raised are not invested. Equity release is not suitable for everyone, and it’s important to receive professional advice from a qualified and experienced adviser.
We are seeing increasing growth in Later Life lending products aimed at applicants who are 50+ who are not yet ready to repay their interest only mortgage, and have the income to keep on servicing the mortgage on a monthly basis
We are seeing increasing growth in Later Life lending products aimed at applicants who are 50+ who are not yet ready to repay their interest only mortgage, and have the income to keep on servicing the mortgage on a monthly basis. Most high street lenders will only offer an interest only mortgage up to age 70. However, for a higher LTV and for affluent individuals who can evidence income and/or assets, interest only mortgages can now be continued well beyond the traditional end date of age 70.
For suitable candidates, there are various options available. Retirement Interest Only (RIO) mortgages can bridge the gap between an interest only mortgage through a high street lender expiring and equity release mortgages. RIO mortgages are based on affordability rather than age and LTV, and the interest must be serviced on a monthly basis. The lending is based on State pension, private pension, rental income and investment income. Affordability is calculated on the mortgage being affordable if one of the applicants passed away during the term of the loan. RIO mortgages can be fixed for up to 5 years or longer and they’re available for an LTV of up to 75% maximum, so at a much higher LTV than equity release for younger applicants.
Private banks can look at income received in retirement, as well as applicants’ overall asset position, and can help with intergenerational wealth planning. Some private banks are now offering later life lending options
Term Interest Only (TIO) mortgages again are based on affordability with interest being serviced on a monthly basis, and can be arranged with no maximum age at the end of the term. RIO and TIO lenders are also able to take into account undrawn pensions and savings/investments to boost affordability. For a HNWI client, private banks can also be an option. Private banks can look at income received in retirement, as well as applicants’ overall asset position, and can help with intergenerational wealth planning. Some private banks are now offering later life lending options.
What should HNWIs look for when seeking a private bank for property purchase/Lombard loan facilities?
Private banks are not just a provider of current accounts and mortgages, but they should also have their client’s best interests at heart, so finding out whether a particular private bank can introduce them to other experts such as tax specialists and wealth managers, is a good ideaPrivate banks are not just a provider of current accounts and mortgages, but they should also have their client’s best interests at heart, so finding out whether a particular private bank can introduce them to other experts such as tax specialists and wealth managers, is a good idea. Most importantly, it’s recommended that individuals speak to specialist mortgage brokers who have first-hand experience in finding bespoke solutions as they can scour the market to find the most suitable option, rather than just going to their existing bank.
