We’ve recently seen a steady flow of borrowers approaching us who have been called in by their private bank to review their loan facility. It is no longer a sure thing that their loan will be renewed at the end of the five-year term. Market conditions have changed since they took out these deals and banks wish to improve their capitalisation by boosting their wealth management business. In the most extreme cases, the bank has implied that it wants the loan repaid over 12 months if the new conditions are not met, so the borrower must find a new lender.
Just as private banks have different criteria and strengths, these new conditions vary. Some clients must transfer assets under management (AUM), while others must pay a higher rate of interest or the renewal will be for a much shorter term of, say, one to two years, during which time they would be expected to provide the wealth management aspect. There may be an issue with loan-to-values (LTVs); while prime property values have increased, banks may require borrowers to pay down some of the loan to reduce the LTV to reflect the lender’s tighter criteria, introduced since the downturn. Those borrowers who can’t meet these new requirements face a search for another private bank.
At the height of the mortgage boom, all banks – not just private ones – were more flexible and willing to lend. In 2007-08, private banks opened their doors to clients who would normally have approached high-street lenders for mortgages. But terms and conditions have changed. Some private banks didn’t get the investment business they needed as they moved too far down the transactional route, so now want the relationship to be about more than just lending. This is understandable, as the investment side of the business has always been central to what private banks do, and relationship building is always key.
Private banks are often still the best option for high-net-worth borrowers with complicated income streams, such as bonuses, performance-related pay, retained profits in a business and offshore income, and who require interest-only. Those buying a short-lease property will often also require funding from a private bank.
It is vital to seek advice from an independent mortgage broker, such as Anderson Harris, with a good understanding of the private banks and their requirements, which differ substantially. Details are not published so unless you know what each bank wants, it can be impossible to work out which is most suitable. Hardly any have ‘best buy’ rates: rather, deals are bespoke, depending upon the borrower and their circumstances. Even if the bank has a published mortgage rate, it may be prepared to improve its terms to secure the right sort of client.