Several high-street banks have recently set out their stall and declared themselves open for business when it comes to large mortgages. While we welcome increased competition in the £1m-£2m arena, we remain rather skeptical as to whether the mainstream banks will actually be able to do the deal.
Don’t get us wrong: there are some great rates out there and access to the Government’s Funding for Lending Scheme will only result in even cheaper mortgage deals from the major players. But while rate is important, it is only part of the picture.
Private bank mortgages
There are several reasons why borrowers use the private banks for mortgages, which high-street lenders will struggle to replicate. Speed of execution is often crucial: the borrower may be in a contract race and need to secure funds quickly. Flexible underwriting is important: being able to explain your case to the decision makers who take the time to understand what is going on.
Borrowers tend to use the private banks because they have complex income streams that the high-street lenders don’t or can’t understand, such as retained profits in a business, income from share dividends or they are self-employed. They may require interest-only, particularly if they receive a fairly modest salary but the majority of their income is made up of sizable and fairly predictable bonuses.
Another issue may be the property they are buying: it may fall out of the remit of ‘normal’ criteria as assessed by a high-street lender. It may have a short lease, for example, or the client may intend to knock it down and build a new home to their specifications.
The advantage of high-street lenders is that they are not after assets under management (AUM). Private banks are often criticised for demanding AUM before they will consider lending. Yet we often find clients are not adverse to transferring custodianship of shares or shifting savings or other investments across if it means borrowing at around 2 per cent over the cost of funds. This can be done on investment properties too, not just residential, which is a far better rate than a borrower would get on the high street.
It is great news that there are increased choices for those requiring large loans and that rates are falling. But this remains a specialist market and specialist advice is crucial.
The answer may be on the high street but in our experience, it usually isn’t.