As a result, the lender needs to apply what is known as a rental stress test on every property the landlord owns.
This determines whether the rental income that is being generated from these assets is enough to cover mortgage repayments, even in the case of interest rates rising.
Landlords applying for a prime property mortgage are required to undergo a rental stress test, and prospective applicants will need to understand the consequences of what this could mean to them.
Thankfully, there are specialist lenders equipped to provide the preliminary advice and guidance prior to an application being received.
HNW individuals don’t automatically qualify for a mortgage
Since the onset of the global economic crisis, lenders have sought to reduce their levels of risk exposure.
To do so, more and more lenders are relying on a stricter set of criteria to determine whether they are able to issue a loan.
It may surprise you to hear that HNW individuals have not been immune to this trend.
In fact, they can be complicated clients for some credit providers.
As a general rule of thumb, the wealthier someone is, the more complicated his or her finances become.
This means complicated (or even non-existent) income structures, investment portfolios spanning multiple jurisdictions and illiquid assets.
An inability to prove a stable income and the fact that the borrower is buying an investment property are two of the more common reasons that a HNW might be turned down for a prime property mortgage.
Based on a 2019 survey of 500 HNWs based in the UK, it has been found that 12 per cent have been turned down for a mortgage in the past decade.
Interestingly, 79 per cent also felt that lenders rely too heavily on “tick-box methods” that fail to appreciate their unique personal circumstances.
Ultimately, the challenge when providing £1m-plus mortgages to wealthy clients is to understand the borrower in great depth; what assets they own, what the liquidity of their investments is, their income and the reasons for acquiring a property.
This brings me to my next point.
Find a lender who specialises in prime property mortgages
The process of selecting any type of service provider can prove a trying task.
Borrowers intend to rely on brokers to sift through the plethora of financial products available and identify a list of lenders relevant to their needs.
When we consider prime property mortgages, lenders in this market can be divided into two categories: high street banks, and specialist private lenders.
By specialist private lender, I am not referring to alternative finance providers, but rather those who specialise solely in prime property mortgages.
Questions appear on the last page of this article.