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Large and high net worth mortgages
What is a large or high net worth mortgage?
A large mortgage, as the name suggests, is typically a mortgage for £1m or more. If you want to apply for a large mortgage, you’ll need to be a high net worth customer, which essentially means you must either have a high income or own a significant amount of assets. The Financial Conduct Authority defines a high net worth customer as a customer with an annual net income of over £300,000, or one who has assets totalling £3 million or more.
Which lenders offer high net worth mortgages?
There are several high street lenders who will offer mortgages of £1m or above if you’re planning to purchase a high value property. Whilst these can be a good option if your income and outgoings are straightforward, a more bespoke solution might be required if, for example, some of your income is from bonuses or vested shares rather than a salary.
High street lenders might not be suitable if you need to borrow a large percentage of the value of the property, as they will usually have a maximum loan-to-value, which effectively caps the size of the mortgage they are prepared to offer you.
In these cases, more specialist solutions may be required, such as a private bank. They can often be more flexible than mainstream lenders when it comes to high value mortgages, agreeing to lend based on individual circumstances rather than sticking to more rigid lending criteria, although they may come with higher costs.
Why choose a private bank?
Private banks can help meet the more complex needs of high net worth customers by really getting to know you and your unique circumstances, whilst at the same time often providing competitive rates.
Unusual properties, such as those with large acreage or outbuildings/annexes, and ownership structures including on and offshore trusts or Special Purpose Vehicles (SPVs) can be considered by private banks, whereas they might not be considered by high street lenders.
Who can apply for a mortgage from a private bank?
Some private banks may impose conditions before they agree to lend to you. For example, they might insist that you hold a minimum amount of assets and investments with them first, known as ‘assets under management.’
The amount of assets under management, if required, typically ranges from a minimum of £500k to 50% of the amount you’re looking to borrow. In some cases, moving your pension fund to the bank would count towards this amount. You should always seek professional financial advice if you’re considering transferring a pension, so you can be certain of the costs involved and that you wouldn’t be giving up any valuable benefits or guarantees.
What else you need to know
If you’re taking out a high value mortgage through a private bank, typically the amount you’ll be able to borrow will be restricted to 60–65% of the property value. However, if you are in a particularly strong financial position, it is possible that some may consider as much as 95% of the property value, providing you agree to pay back some of the capital at various stages over a defined period.
Loan to values will tend to fall as the property value increases, so limits will be more restrictive on very expensive properties.
How much do larger mortgages cost?
If you’re taking out a large or high net worth mortgage there will usually be arrangement fees to pay, so it’s important to factor these into the overall cost of any deal. Arrangement fees will usually either be a set amount, or a percentage of the purchase price of the property.
If you are taking out a high value mortgage, a deal with a lower rate but higher arrangement fee may work out to be more cost-effective than a deal with a slightly higher rate but a lower arrangement fee. Remember that there will also be survey and legal costs to pay on top of the arrangement fee.
Private banks typically charge a 1% arrangement fee and survey and legal costs will also need to be covered separately.
How L&C can help
We have experienced advisers that regularly deal with large or high net worth mortgages. We can arrange bespoke mortgages with private banks tailored to your individual circumstances, or if appropriate, recommend high street lenders which cater for those seeking larger mortgages. Get in touch today and see how we can help.
Large mortgage FAQs
Can restricted stock units (RSUs) be used to calculate affordability?
Yes, there are private banks who will use RSUs in their calculations to arrive at the amount they will lend as long as there is a track record of RSU allocations (typically 2 to 3 years) which can be evidenced (typically through a vesting schedule).
Can 100% of bonuses be considered when calculating affordability?
Yes, with certain banks, 100% of cash bonuses can be considered although most will consider up to 75% of cash bonuses with a track record.
Will I need a 3 year track record of self employed income if I have been recently promoted to partner within a law firm (or accountancy firm)?
If you’ve recently been made a partner at a law or accountancy firm most private banks and some high street banks will take a pragmatic approach. Often they’ll use figures confirmed by the accountant to reflect what a partner with a similar percentage share would earn going forwards.
Can foreign currency earnings be considered for affordability?
Some high street banks and private banks can consider income denominated in foreign currency although there will be a list of acceptable currencies and a discount may apply to different currencies based on currency fluctuations.
Can I get a mortgage as a professional footballer on my current salary which is on a contract?
Private banks can consider these scenarios and will base their lending on current earnings on a professional sports contract as long as there is professional insurance cover in place.
Can assets held be monetised to provide an income stream to calculate affordability for a mortgage?
Assets such as an investment portfolio or a pension fund can be monetised to provide an income stream which can then be used to assess affordability.
Do lenders still consider pre funding?
This is very rare, although may in some unique circumstances still be possible to lend on a shorter term by ring fencing assets to service the interest over the term of the mortgage as long as there is a clear exit strategy and a compelling reason to do so.
Can I borrow on my new residential purchase whilst my current property is still on the market and may only be sold after the new purchase?
There are private banks who will consider these scenarios and may even be able to lend 100% on the new purchase by taking a cross charge on both properties with the condition that the current property will be sold within a year or two and a portion of the mortgage redeemed from the sale. The loan will need to be affordable based on usual affordability calculations.
The residential property I am purchasing has an annexe on the grounds - will this be an issue?
Although this may limit the lenders to consider, it can be considered by some who are particularly flexible when it comes to considering complex property types
Can I borrow on an interest only basis on a mortgage with a small deposit?
There are private banks who can lend on an interest only basis with a small deposit to start with. However the structure will have annual lumpsum repayments built in to reduce the capital borrowed in line with annual bonus payments to help with cash flow.
