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In recent years, tough new rules have come in which tightly govern the way lenders assess whether a potential borrower can afford the mortgage they apply for.
While these rules offer greater protection against the type of risky lending prevalent in the credit boom before the financial crisis, many considered they were too restrictive for certain borrowers
Mainstream lenders operate on economies of scale and have to take a one-size-fits-all approach when screening mortgage applicants. It means that if you run your own business or have a range of different sources of income, you might fall through the net.
Luckily there are private banks that are better able to cater to borrowers with a more complicated financial profile. Often these borrowers are actually quite wealthy and very well able to afford a large mortgage, but the way their assets and income are structured makes it difficult for them to pass the standard affordability tests applied by the high street banks.
The rules that govern lending to wealthier borrowers are not as strict as those for mainstream customers. The city watchdog, or Financial Conduct Authority, calls these borrowers ‘high net worth customers’. In order to fit this definition you must have an annual net income of at least £300,000 or assets of at least £3m. Alternatively, you could be a borrower whose mortgage assets are guaranteed by someone who meets the above criteria.
While it might sound risky, it will suit many asset-rich borrowers as it gives lenders much more flexibility to be able to take into account the full scope of their wealth.
This will suit business owners who prefer to keep as much of their wealth as possible within their company. It gives lenders the ability to look behind the scenes at numerous factors rather than just basing their decision solely on payslips and bank statements.
For standard borrowers, lenders must apply a cap of 4.5 times earnings on at least 85% of any mortgage they agree. But this does not apply to borrowers who meet the high net worth criteria.
Private Finance has strong relationships with underwriters across the lending industry who are able to look at individual borrowers on a case by case basis rather than just applying the standard rulebook.
Managing director, Simon Checkley says: “The range of different types of assets that private banks will take into account are really quite impressive.
“We’ve had clients with antique jewelry collections, fine art, vintage cars and yachts.
“The lender will take into account how liquid the assets are – for example, could the borrower sell one of the cars in their collection if they needed to repay the loan?
“Often they will be willing to offer interest-only mortgages to such clients, giving them greater choice about when they want to repay chunks of capital, for example if they get an annual bonus.”