Private banks are stealing a march on the high-net-worth mortgage market.
What is a large loan in today's money? Not that long ago mortgages over £250,000 were considered jumbo, but with average house prices nudging £200,000, a £250,000 loan is not considered out of the ordinary any more. In 2008 you need to be borrowing half a million to get into the large loan club.
If you fall into this category you may have been disheartened by recent newspaper stories that high street banks are pulling back from the jumbo mortgage market, making it increasingly difficult for borrowers to get a competitive deal.
The rest of us may be forgiven for not having too much sympathy for those who have to pay a bit more on their £1m mortgage, but if you have a large mortgage, an increase in your mortgage rate is going to make an even bigger impact than for the rest of us.
On the high street
High street banks are currently cautious about the credit quality of their borrowers and they have limited lending power, so they want to offer the products to those with massive deposits, charging big fees, to make the deal as low risk as possible.
Some have cut the maximum they will lend to just £500,000 and those who will lend more have hiked their charges -- fees of over £20,000 are not uncommon.
Halifax will still lend up to £7.5m at just 6.25% on a two-year tracker, with a minimal fee of 0.50%. However this is only available to those with a 40% deposit, which if you are buying properties in the millions of pounds bracket is going to be significant.
It also offers a two-year fixed rate for those with just a 10% deposit at 6.79%, but this comes with an eye-watering 2% fee (£20,000 on a £1m mortgage).
Going private
If you don't want to pay such a large fee, and want to benefit from a more competitive interest rate, private banking could be your best bet.
While the high street players are reigning in their lending, there is still an appetite to lend large loans at decent prices from some organisations.
Deals can be done for between £500,000 and £25m as long as the client is high-net-worth with no arrears and has significant assets -- which could be property, stocks or something else.
Investec Private Bank has taken advantage of the reduced lending capacity of the traditional players in the last year, recording year-on-year growth of 45% in the mortgage lending arena.
It recently launched a mortgage product targeted at a sector of the super rich -- City workers. The mortgage is designed for individuals who earn a large proportion of their income from annual bonuses, allowing them to make smaller monthly mortgage payments in line with their basic salaries and to make up the difference with one larger interest payment when their bonus is received.
The deal is available to those with earnings in excess of £300,000, a significant proportion of which is earned through bonuses, and the minimum mortgage available is £500,000.
In addition to its Bonus Mortgage, Investec will custom-build mortgages to suit individual consumers -- and this is what stands private banks apart from their high street counterparts.
Private banking does not offer a list of deals for borrowers to choose from. It makes mortgages to suit circumstances, whether the borrower needs gearing against multiple assets (like offshore deposits) or they need a multi-currency mortgage.
They have no rigid lending criteria such as maximum loan-to-value requirements or income multiples, plus the relationship that the borrower (or their adviser) has with the bank can have a huge bearing on the deal they are given.
Rates are available from 6%, which is very competitive compared to the high street. And on a jumbo mortgage this could make a huge difference.
£1m borrowed at 6.79% (on a 25-year repayment basis) would mean monthly repayments of £6,934
At a rate of 6.00% repayments would drop to £6,443, a £500 monthly saving
- As well as getting a cheaper rate there are other benefits to dealing with a private bank:
- Your fee may be smaller and they may not impose any early repayment charges
- You may be able to borrow more
- The bank may take into account offshore income and other assets such as stocks, businesses or yachts
- You will receive a personal service and probably deal with just one person throughout the process
- Any unusual circumstances or needs can often be provided for
But, there may be some catches:
- You may have to be a member of the bank
- You may need minimum assets or a minimum income to qualify
- You might need to open other accounts with the bank
- The banks may impose a minimum borrowing limit, such as £500,000
So how do you get hold of these mortgages?
Good advice is key and you need to deal with a broker who specialises in the high-net-worth market (unless you are a member of one of these banks already).
They have had relationships with the private banks for many years, serving super rich clients with unusual financial circumstances and needs. These brokers are currently placing cases and even acting as master brokers for those advisers who do not have the contacts.
Strong relationships are important to achieve the most competitive terms on large loans and if you want a jumbo mortgage from a private bank, you need to find a good broker to negotiate for you.
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