Today sees the publication of the long-awaited Mortgage Market Review (MMR) from the Financial Services Authority. The proposals, which are now subject to further consultation, are designed to prevent a return to some of the irresponsible lending seen before the credit crunch.
There is much in the news about the general impact these proposals may have on the mortgage and property markets. But what about high-net-worth (HNW) and wealthy borrowers who make up the bulk of our clientele? We thought it important to blog about the specific impact the MMR is likely to have on this group.
The self-employed will be affected by the proposal that income must be verified for every mortgage application. Indeed, self-certification loans – where the borrower stated their own income – have already vanished. But just because you must now prove your income doesn’t necessarily make it impossible to get funding. Lenders have different requirements on this, asking for accounts over various periods of time, as well as taking other factors into consideration. We know which lenders are most sympathetic to the self-employed so don’t assume it will be impossible to get funding. Check with us first.
It’s not just the self-employed who may have a problem proving income. If you are one of the many people who have a complicated income stream, perhaps made up of bonuses, retained profits in a business, performance-related pay or offshore income, your average high-street lender will struggle to understand it. This could severely restrict the amount you are able to borrow. But all is not lost because the private banks really come into their own here as they are prepared to look at the bigger picture and better understand the needs of wealthier borrowers.
The clampdown on interest-only borrowing could have a big impact. Under the proposals, all borrowers will have to provide evidence of how the capital will be repaid. Anyone who has tried to take out a mortgage recently via a high-street lender will know this is already happening, with restrictions on loan-to-values and acceptable repayment vehicles. The FSA really has first-time buyers in mind who may in the past have opted for interest-only in order to stretch their affordability but many more borrowers will be caught in this net. However, private banks can be particularly helpful as they better understand interest-only borrowing than high-street lenders and will consider an inheritance or the sale of the property as a legitimate alternative to an investment such as an ISA.
All really is not lost, particularly as the FSA admits that wealthy borrowers – those earning £1m a year or with net assets of £3m – may be treated differently from those with more modest incomes and assets: ‘there is an argument that above some level of income and wealth… it is perfectly reasonable for a consumer to take greater risks and that regulation is not needed to protect those consumers from the decisions they have made.’
This may explain why the FSA proposes that those using a mortgage to consolidate their debts should seek compulsory advice, while wealthy borrowers should not have to. Here we beg to differ: everyone should seek advice when taking out funding to ensure they are getting the right deal for them. There are so many specialist lenders and private banks you may not even have heard of which may just provide the right funding solution for you.
Why miss out? Your mortgage is too big a financial commitment to take chances on, no matter how wealthy you may be.