Arranging a mortgage when you’re a high net worth client can be more difficult than you might think. With the help of Gary Edwards, Credit Advisory Specialist, and Sunil Rana, Credit Advisor, we explore the challenges and how a tailored approach can help.
Why are high net worth individuals turned down for mortgages?
Sunil: To make high street mortgages competitive in terms of accessibility and pricing, they are standardised. That makes them very good propositions for the general public, but that one-size-fits-all approach just doesn’t work for high net worth individuals (HNWIs).
Gary: Using a tick box form disadvantages HNWIs who might score poorly on salary multiples, for example, or residency requirements. Credit scoring is a tool that works really well in the mass market, but not in terms of bespoke private banking lending.
Sunil: That’s where the more judgemental, holistic approach you find within a private bank can make a difference. Whilst we still have to apply the same FCA rules and regulations when we’re assessing areas such as serviceability, for example, we can use some discretion when it comes to interpreting the information we receive from a client, rather than just using a tick box scorecard.
If we look at the various criteria, in terms of income, a HNWI may be self-employed or a company director and may not pay themselves a salary or have tax returns available to back up their income details, so they don’t tick an income box. With regards to salary multiples, they may be looking to borrow eight times to cover cost of purchase, so they don’t tick the typical mortgage box of 4.25 times salary.
Gary: Dealing with private banking professionals can benefit HNWIs as they have an expert who can assess serviceability by looking at their wider asset pool, global liquidity or even right through to clients’ company accounts.
Sunil: When it comes to loan-to-value, the majority of mortgages today are focused on capital and interest repayments as a matter of policy. For HNW clients who are asset-rich but cash-poor, or for those who could get better returns elsewhere, restrictions on the availability of interest-only mortgages are a hurdle.
We also have access to a broader product range, which means we can assess client need and find a product that suits. We can also take security against a different asset rather than against the property, for example, if it’s in a poor state or requiring development. As an example, we’ve recently lent against a client’s discretionary portfolio to fund a property purchase.
Having the time and capacity to assess a client on an individual basis and provide a bespoke solution that works for them is really what it boils down to.
Why would a HNWI even need a mortgage?
Gary: There are several reasons. Firstly, it’s human nature to extend ourselves and want the next thing, the house we can’t quite afford just yet – it’s aspirational. There may also be wealth planning considerations driving the purchasing decision or the purchasing vehicle choice.
At the moment, one of the key drivers is interest rates, because, with mortgage rates historically low, clients can quite simply make more money elsewhere. If you can borrow at 2.5 per cent but invest for a return of between 5-10 per cent, mortgaging makes sense. If rates start to rise, and that balance shifts, we’ll see repayments increase.
What approach does HSBC take to providing mortgages to HNW clients?
Gary: The key difference is the personal relationships we build with clients, which means we can build a picture of their needs and understand their ability to service the loan, which means we can take decisions easily. Of course, that requires clients to be open and honest with us about their income streams, offshore and onshore assets and so on.
Sunil: Harnessing the resources of HSBC’s global network is key, as it gives real weight to our client-centric approach. For example, many of my clients are foreign nationals buying high value properties in the UK, so being able to leverage group contacts to understand and interpret the availability and scope of key documentation is invaluable.
Gary: It also means that if we’re supporting client purchases in other countries, we can use our international offices to really know that market and assess both the asset and income stream.
Sunil: Having the time and capacity to assess a client on an individual basis and provide a bespoke solution that works for them is really what it boils down to.
Gary: Bringing together experience from our international teams, real estate teams and corporate banking means that we can understand our client at a deeper level, get to know their business and why it’s structured in that way, and then build a mortgage solution that allows them to structure their financial affairs in the most appropriate way possible.
Want to find out more about building a bespoke mortgage solution? Speak to your Relationship Manager or Credit Advisor to understand how we can help.