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In an attempt to put an end to the kinds of risky lending that contributed to the financial crisis of 2008, many mainstream lenders have introduced rigid, ‘tick-box’ approaches to lending which have worked quite successfully to minimise the degree to which these lenders are exposing themselves to risk. An unfortunate but inevitable by-product of these approaches, however, is that they no longer offer the flexibility of criteria necessary to accommodate the needs of individuals with complex wealth profiles. Since a large proportion of sophisticated, high-net-worth borrowers have such income profiles, these individuals are often having to look elsewhere when attempting to acquire property finance. Now, however, in a bid to step in on the £1-3 million loan market which has recently been the preserve of the Private Banks, many mainstream lenders are coming out with bespoke mortgage ranges that offer a far greater degree of criteria flexibility than do their standard ranges. HSBC, Natwest, Skipton, Bank of Ireland, Santander, Halifax, as well as a number of other mainstream lenders now have bespoke ranges with which they are hoping to attract the types of high-net-worth clients that would previously have been ineligible for mortgages with these institutions.
These bespoke mortgages offer improved flexibility on a wide variety of criterion. Some lenders, for example, are willing to take into account larger percentages of bonus income than they would using the criteria of their standard mortgages; some are willing to factor in five-years’ worth of bonuses when calculating the affordability of the loan rather than the standard two-years; some will factor vested stock into their calculations; and others will offer interest-only mortgages at much higher-LTV’s than is usual provided the borrower earns more than a set amount of income (often £250k per year). These bespoke criteria are therefore working to open up mainstream lending to a wide range of borrowers whose complex financial circumstances resist incorporation by the rigid affordability calculations of their standard ranges.
But in addition to the kinds of bespoke criteria outlined above, there are also now mainstream lenders willing to offer bespoke products with specifications that are tailored to the unique needs of each borrower. Skipton Building Society are leading the charge on this front: their bespoke offering does not restrict borrowers to the usual two-, five-, or ten-year terms of standard mortgages; instead, 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 ERCs. 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.
Sign Of The Times?
The introduction of these new, bespoke mortgage ranges comes at a time when many lenders (e.g. Clydesdale) are introducing products aimed exclusively at young professionals working within certain fields, for example, medicine or law. Many of these products offer up to 5.5x income and have been designed to provide young individuals with limited incomes but large earning potential with the kinds of lending that they may require and that they should be able to service. Such mortgages are likely to be in particularly high demand at the moment given the ‘leapfrogging’ phenomenon that’s beginning to arise as a result of high stamp duty rates.
It seems that finally, after years of disinterest, mainstream lenders are now turning their attention towards sophisticated borrowers with atypical wealth profiles and unique needs. Public awareness of these products is still quite poor, but in time, and as lenders continue to expand these ranges, there’s no reason why borrowers of this type should face any especial difficulty when looking to secure property finance.