If you’ve decided that now is the right time to invest in property, you’re not alone. Latest figures show that mortgage approvals are soaring, with 71,000 mortgages given the green light in January 2020.
To put that into perspective, it’s the highest figure since February 2016.
£5m+ mortgage market remains buoyant
When you look to the prime central London property market, mortgage approvals remained relatively buoyant throughout the period of Brexit uncertainty. In fact, the Financial Conduct Authority revealed that, in the year to September 2019, the total £5m+ mortgage market was worth £1.8bn, a £200m increase on the previous year.
High Street vs private banks
The question is; if you are looking to borrow £500,000 or £5m, which mortgage is right for you and should you be considering a private bank mortgage?
What is the largest mortgage I can get?
If you’re looking to the High Street, there are relatively standard terms related to how much you can borrow, which must adhere to strict affordability tests. Usually, a High Street bank will lend no more than 5x your salary and they will need detailed expenditure breakdowns on everything from existing loans to groceries, school fees, maintenance payments and other living costs. The Money Advice Service’s mortgage calculator is a good place to start if you’re considering how much to borrow.
How does a private bank mortgage work?
Private banks will also follow strict affordability criteria, but they’re able to take a more flexible approach to your individual circumstances as many loans are manually underwritten. What this means is that the loan agreement is not necessarily ‘off the shelf’ and so can have specific elements included which allow for the kind of anomalies that happen in real life, for instance a recent change in job or a temporary ‘blip’ in salary due to funds being invested into a business.
Will my bonus or dividend payments contribute to how much I can borrow?
Many high net worth individuals earn in complex income structures, for instance they may earn a significant portion of their income in bonuses or dividends. However, complex income structures are not just for the super wealthy. There are more self-employed people in the UK now than ever before and those with complex or irregular income streams range from self-employed entrepreneurs and finance workers to lawyers, salespeople and company directors.
Private banks can take a more flexible approach
As bonuses and dividends are based on individual and company performance, they often vary and it’s their unpredictability that can cause issues for mainstream lenders working within the parameters of fixed affordability tests. Private banks can generally take a wider view on these elements and look at the long-term risk of working with a client. For instance, a private bank may look for historical data to back up projected bonuses or they might corroborate a projected dividend payment by querying company accounts.
How do private banks work with assets under management (AUM)?
Another way in which private banks can seek security is by building a deeper relationship with a client. In simple terms, this means placing assets under management with the bank. As an example, imagine you owned shares in a well-known company such as Vodafone and a property worth £3m. Under what private banks term a ‘blended facility’, you could custody the shares on a private bank’s platform and the bank can take charge over both the shares and your property to achieve a 100% loan to value against the property. As a result, you could borrow the full £3m value of your home and the shares would act as additional security.
As well as stocks and shares, assets such as jets, yachts, cars, art or wine can be placed with a private bank as additional security for a loan. Depending on the asset, the bank will consider different loan to value ratios.
Can I get a private bank mortgage without placing assets under management with the bank?
If you do not place assets under management, private banks will now consider what we term in the industry as a ‘dry lend’ so this type of lending is far more accessible now than it ever has been.
How can I arrange a private bank mortgage?
Unlike the High Street, private bank mortgages are not readily available, and you need to work with a team of specialist mortgage advisers such as largemortageloans.com. We have a network of established contacts within private banks, as well as the expertise to present your case to a decision maker in the right way. Together, we can work with the bank to facilitate a tailored approach to each case, based on its individual merits and truly bespoke to your individual circumstances.
