Yesterday’s Sunday Times took at look at whether wealthy borrowers are turning to high-street lenders for large loans. The article concluded that private banks were being spurned due to strict terms, namely the need to transfer assets under management in order to satisfy the bank’s requirements to build more than simply a lending relationship.
The Sunday Times points out that there are some very cheap rates available on the high street, such as Chelsea Building Society’s two-year fix at 1.74 per cent with £1,825 fee, for those with a 40 per cent deposit. Chelsea will lend up to £5m directly from branches, while Woolwich has also increased its maximum loan size to £2m, up from £1.5m.
My fellow director Adrian Anderson was quoted in the article, saying: ‘Private bank mortgages often have conditions that might not be in the contracts of conventional mortgages.’ This is true of the private banks but it is also true of high-street lenders. If many of those borrowers with regular high-street mortgages were to read the small print they too would be spooked.
For example, Bank of Ireland recently decided to aggressively hike the margins on its base-rate tracker mortgages, despite no movement in the Base Rate. The Bank was able to exploit a loophole in the small print that many borrowers would have been unaware existed.
Private bank mortgages: room to negotiate
While private bank contracts can come with lots of clauses, this is often only a starting point. It is up to the broker to negotiate with the bank on behalf of the client to remove or alter some of the clauses until a point is reached where everyone is happy. It varies considerably from client to client: we recently had a client who was offered a deal with more clauses than usual but he made an informed decision to proceed as the pricing was so good.
Many of the clauses are in place to prevent a new client taking a mortgage and then not making any attempt to develop a relationship. Many private banks feel they have gone too far down the lending route since the financial downturn and are trying to claw back more of a relationship with the client.
So does this mean the high street is now a better option for large mortgages? We’ve said before that it might be but in our experience of large loans, it usually isn’t. This is mainly because wealthy borrowers need certain things that high-street lenders are not good at delivering:
1) Wealthy borrowers often need speed of service – something never guaranteed and often not available via high-street lenders.
2) Wealthy borrowers need a lender who understands their complex income streams – something the high-street lender which doesn’t take into account bonuses, share dividends or retained profits in a business, simply doesn’t.
3) And wealthy borrowers often need interest-only mortgages – again, something the high street does poorly. For example, Halifax will lend up to £7.5m but does not offer interest-only on larger loans. This is a typical stance on the high street.
We’re not convinced those borrowers requiring large loans are shunning private bank mortgages in favour of high-street lenders. But it is always good to have some healthy competition.