After months of consultation, the Mortgage Market Review (MMR) is finally published, including certain welcome exemptions for wealthy borrowers.
The Financial Services Authority (FSA) recognises that high-net-worth borrowers have different demands of lenders than the less wealthy. They tend to have more complex incomes and short-term lending facilities of five years or so, which are typically offered by the private banks.
With wealthy clients, there is no need to drill down into the details of basic expenditure such as utility bills and council tax, for example, while they are often asset-rich so mortgage payments could be serviced through these assets, including the sale of the property.
In an earlier consultation, the FSA proposed defining a HNW customer as having a minimum net annual income of £1m or minimum net assets of £3m, but the minimum income requirement was reduced to £300,000 in the final version of the rules. This is a sensible revision, as £1m is much too high and would exclude many people that most of us would normally describe as ‘wealthy’.
The MMR recognises that the wealthy have a ‘considerably reduced risk of becoming homeless’ if they get into financial difficulties because they have other assets that they can call upon. This is a common-sense approach. It also appreciates that the private banks keep up a good dialogue with their clients because they are providing a bespoke service, so the client’s situation is continually reviewed, at the very least on an annual basis.
While HNW mortgage customers will be able to get a mortgage on an execution-only basis, we still think it is essential that advice is sought from an independent mortgage broker who specialises in arranging funding for wealthy clients. Because the structure of the deal and interest rate tend to vary depending on the client, advice is crucial in ensuring that it is the right product. Having someone who understands the market negotiate with the lender on the client’s behalf can make a crucial difference.