MortgagesSep 2 2019

Mainstream lenders target HNW clients

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Mainstream lenders target HNW clients

Mainstream mortgage lenders are increasingly targeting high net worth borrowers, offering them bespoke ranges with greater flexibility, a mortgage adviser has said.

According to Private Finance, since the financial crisis that saw the introduction of more rigid lending processes high net worth clients have found it difficult to secure loans.

This is because lenders' rigid ‘tick-box’ approaches to lending to minimise their exposure to unnecessary risk meant many HNWs were no longer meeting the criteria.

This was already alleged by Butterfield Private Bank in March, which found about a ninth of HNW clients had been turned down for a mortgage in the past decade due to rigid criteria applied by banks

Chris Sykes, mortgage consultant at Private Finances, said: “Since a large proportion of sophisticated, high-net-worth borrowers have [complex] income profiles, these individuals are often having to look elsewhere when attempting to acquire property finance.”

But banks have already started to respond to this problem.

Mr Sykes cited Skipton Building Society as the lender that is leading the way, as not only does it offer bespoke ranges for high net worth clients, it can also tailor products to suit the needs of each borrower.

The service launched in 2017 and allows clients to mix and match key product elements, such as the term, fee and product incentive, to create tailored mortgages.

The building society also has priority underwriting with a larger loan team which assesses all cases individually and updates brokers straight away.

A spokesperson for Skipton Building Society, said: “Customers with large loan needs typically have higher than average incomes, which can often be complex in nature and don’t lend themselves to standard mortgage products.”

Mr Sykes added: “Borrowers have the freedom to select precisely how long they want to be locked into the initial term of their mortgage.

"If they need a three and a half year loan, maybe their children are due to finish school at the end of this period, at which time they want the freedom to downsize if they so choose, then Skipton’s bespoke offering will be able to accommodate this desire, allowing the borrower to avail themselves of the lender’s five-year fixed rate while only locking in for three and a half years’ worth of early repayment charges.

“Bespoke products of this type are often more expensive than standard, cookie-cutter mortgage products – in actuality, the costs of such mortgages are closer to those of private bank mortgages than to standard mainstream mortgages – but the added flexibility they provide is likely to prove very attractive to borrowers with unique and specific requirements.”

Other mainstream lenders including HSBC, Natwest, Santander, Halifax and Bank of Ireland, have offered more specialist ranges for a few years. However, there have been new entrants to the market of late.

In May 2019, challenger bank OakNorth entered the retail mortgage market with a range of lifetime trackers specifically targeting entrepreneurs, SME business owners and other high net worth individuals that have non-uniform income streams.

Commenting on the launch, Ben Barbanel, head of debt finance at OakNorth, said: "High-street banks have limited mortgage offerings when it comes to borrowers who don’t have a regular or established source of income, such as the self-employed or business owners. Private banks, on the other hand, tend to have high entry requirements that are unfavourable to most of these individuals.

"Lenders are typically unwilling to offer bespoke terms to their mortgage products and as a result, more than one in ten business owners in the UK are unable to access the finance they need to purchase their first home.”

Meanwhile, Deutsche Bank Wealth Management also announced its entry into the bespoke lending sphere in May this year, offering a mortgage range for will consumers who want to borrow £3m or more.

Research carried out by Together in July 2019 found that 54 per cent of those turned down by a mortgage lender were rejected for reasons considered ’nonstandard’, including self-employment.

Pete Ball, CEO of personal finance at Together, said:  “There has been a paradigm shift in the UK mortgage market as people’s ways of living are constantly evolving, however the UK mortgage market are stuck in the past in adapting to these changing needs of customers.

“This is largely due to the increasingly computerised process of lenders which automatically declines customers whose day-to-day circumstances do not fit their tick-box model.

"As a result, more than half of mortgage applicants are rejected for reasons that are essentially becoming the norm.”

He added: “It is staggering that factors such as being a contract worker or self-employed are more likely to exclude you from the mortgage application process than not having a large enough deposit.

"This is a strong indication that factors measuring your fitness for a mortgage are not adapted to the modern customers’ needs.”