July 2021 | High Net Worth

Why HNW mortgage cases are unique

Peter Izard is business development manager of Investec Private Bank

When working on a mortgage case for a high net worth (HNW) individual, there are various considerations that brokers must take into account to ensure they find the best possible solution.

Like any client, high net worth individuals want to secure their ideal home as quickly as possible when they find it.

But more often than not, these clients can have complex income structures and unique lending requirements, meaning their ability to secure a mortgage can be challenging.

Understanding these requirements and providing a tailored solution is essential. If you’re sourcing a mortgage for a HNW individual, here are five principles to apply.

Applications cannot be a tick-box exercise

Typically, when applying for a mortgage through a retail or high-street lender, a bank will calculate the maximum loan-to-value (LTV) of a mortgage as a multiple of an individual’s annual salary.

For HNW individuals, however, this can lead to problems in the application process, as many wealthy individuals can have complex income structures that high-street lenders cannot take into consideration.

For example, at Investec, many of our HNW clients tend to work in sectors such as private equity, investment banking or entrepreneurship. This means their income can consist of stocks, bonuses or dividends, which may also be deferred.

For this reason, it’s vital for brokers to work with a mortgage provider that can take a holistic approach to their clients’ wealth and form a true picture of affordability.

Build a ‘biography’, and know it intimately

While understanding a HNW client’s entire financial picture is vital, it’s just as important to understand the background of who they are as an individual. Brokers should seek to build an in-depth summary of their client’s background, including their career history and business ventures, as well as their investments.

This not only helps build a better relationship with clients, but will also help them when sourcing the right mortgage for their specific needs.

By giving a lender an entire picture of their client, it can help them better understand their track record, and identify if there are any risks to take into consideration.

Debt is not a dirty word

For many HNW individuals, borrowing funds to buy a new property isn’t simply about moving house. 

For the average homebuyer, a mortgage is seen as a significant debt that should be reduced. For HNW individuals, however, a mortgage can allow them to free up capital for investment elsewhere.

This is particularly true in a low interest rate environment.

It’s common for HNW mortgage applicants to have other assets or to want to preserve their liquidity, and this is not necessarily detrimental.

In fact, it should be recognised as part of a growth mindset and taken into account when sourcing the right lender for their needs.

Flexible repayment schedules are as important as interest rates

If a HNW client has a complex or irregular income stream, a flexible repayment plan may be a higher priority for them than a low interest rate or arrangement fee, because it allows them to repay the mortgage in a way that suits them best.

A mortgage could allow them to make capital reductions to coincide with their cashflow and leave other investments untouched, and this could mean lower monthly repayments on an interest-only basis.

Saving time is saving money

We can all find that there is never enough time to deal with our priorities, so perhaps the most important consideration for HNW mortgage cases is the ability to act quickly.

These individuals are often time poor, so providing an efficient service can demonstrate a broker’s value.

It’s therefore vital to work with a lender that can meet your client’s need for speed.

At Investec we work on a number of cases for HNW individuals, and are familiar with many of the challenges in this space. Please do reach out if we can help in any way.