What is a High Net Worth Mortgage?
“A high net worth mortgage is a specialist mortgage intended explicitly for buyers with a high income or hold high-value assets.”
The next question is: what constitutes a high net worth mortgage customer?
High net worth mortgage customer definition:
According to the Financial Conduct Authority, a high net worth customer is:
“A customer with an annual net income of no less than £300,000 or net assets of no less than £3,000,000, or whose obligations are guaranteed by a person with an income or assets of such amount.”
Where more typical mortgages provide a type of off-the-shelf loan for earners of more conventional salaries, a high net worth mortgage is a bespoke arrangement, custom-designed for a specific buyer, organised through a broker.
Arranging a higher-value custom mortgage through a specialist lender offers more flexibility and considers far more complex income streams than standard high-street mortgages.
Why do high net worth individuals need a special mortgage?
Accruing that kind of enhanced wealth rarely happens from drawing a regular payslip but through entrepreneurialism, investment, or other less-traditional forms of financial gain.
- Company profits
- Director or partner bonuses
- Substantial commissions
- Dividends from stocks and shares
- Contractor returns
- Rental incomes
Where a high-street lender utilises a more traditional, standard process, with checkboxes and input fields determining an applicant’s validity, they rarely have the time or flexibility to pursue more convoluted finances and complex income streams.
Why would high net worth individuals need a mortgage at all?
Surely, with so much money available to them, couldn’t they just buy a home or property outright? Many could, but that wouldn't provide the most financially astute with the kind of control over their finances they like or to retain existing assets while accruing new ones. Moreover, tying up a large amount of capital in one investment isn’t always an efficient way to manage their money.
An HNW mortgage also allows high earners (or those with irregular incomes) to buy new homes and make property investments before those finances reach their bank accounts without having to sell other assets to make the purchase.
By utilising revenue from alternative income streams, they can more easily cover lower interest-only mortgage repayments while accruing the means to make capital repayments further down the line.
High net worth mortgages from mainstream and private banks and private lenders
Property has always been an excellent investment, and with market prices higher than ever, mainstream lenders regularly lend on properties with million-pound price tags. However, with properties achieving multi-million-pound values, finances become far more complicated, as do the risks.
This attracts a particular type of lender. Mainstream banks aren’t always keen to ‘put all their eggs in one basket’. Recovering costs by selling a single high-cost home can take much longer and far more resources than selling a selection of lower-priced, more sought-after homes.
However, a private bank or lender can construct a bespoke arrangement that satisfies the needs of both borrower and lender, with far greater flexibility and preferential terms. Because of this, they’re uniquely positioned to provide a service for a particular level of customer.
Dealing with specialist HNW mortgage brokers
As private banks and lenders provide the bulk of HNW mortgages, introductions are always carried out through specialist high net worth mortgage brokers.
The unique arrangements between borrower and lender require specialist knowledge and experience in the industry and finance, so a professional must carry out negotiations and deliver the necessary paperwork.
What constitutes a complex income?
Rarely do the highest earners have a single steady paycheck. Instead, their income comes via several streams that don’t sit easily on standard mortgage applications. For example, they could come from a range of regional or international investments, long-term incentive plans, dividends, venture capital or angel investments. For those incomes, it’s necessary to find a lender who understands the type of security they offer, despite not showing a traditional month-by-month remuneration.
Another situation where HNW mortgages are often utilised is when a borrower is on a defined path to high future earnings. For example, where career paths offer superior wealth on the horizon, lenders may consider newly qualified professionals or new partners in existing businesses for more considerable loan amounts, offering repayments in line with their expected earning trajectories.
Lawyers, doctors, contractors, traders, company directors, and investors are some occupations that receive that type of attention, accessing advanced specialist mortgage opportunities.
With complex incomes, lenders may be prepared to accept revenues that won’t materialise immediately, so they will expect a guarantee in some shape or form to recoup losses from defaulting clients.
Using alternative assets as collateral—property or stocks and share portfolios, high-value cars, jewellery, or antiques—can be used as collateral if deemed suitable. However, they're still at risk of being lost, as with any other mortgage, if the borrower fails to make their repayments.
Second home HNW mortgages
For those with accrued wealth, investing in a second home can be an excellent investment as property rarely loses value, whether a house in the city nearer business operations or the country, used as a retreat or getaway.
Applying for a second home mortgage can be trickier than achieving funding for a buy-to-let investment, as with a buy-to-let, there’s a dedicated income stream attached to the property.
But, with a private bank examining any combination of the buyer’s incomes and assets, they will often approve transactions. They may even offer higher LTVs and preferential interest rates than high street banks, using different sets of calculations to finalise repayment amounts.
Interest-only HNW mortgages
As with conventional mortgage amounts, interest-only HNW mortgages offer lower repayment amounts to buyers of more expensive properties.
The benefits of interest-only mortgages at this higher end of the market allow buyers to expand property portfolios without selling existing assets to pay for them or disrupting existing cash flows from stocks and shares. Paying into an interest-only mortgage on a high-value property offers the same advantages as on a standard-size mortgage, only with far higher and more lucrative returns.
At the end of the term, the buyer can sell the property or an alternative asset to repay the capital. If their investments have panned out as intended, they could cover what’s needed to settle the initial property price without impacting other business operations or investments.
Conclusion – could you be entitled to a high net worth mortgage?
If you’d like to speak to our specialist advisors about what it takes to achieve a high net worth mortgage and the type of figures you could accomplish, CLS is ready with the answers you need. In fact, if you’re looking for any value mortgage—high net worth or otherwise—we’ve got a wide range of lenders ready to cater to every eventuality.