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Private bank mortgages – are lenders tightening up?

22.10.2013

Anderson Harris was quoted in the Financial Times at the weekend talking about private bank mortgages and whether lenders are tightening their criteria, particularly in relation to their appetite for dry lending. Reportedly, SG Hambros is no longer doing dry lending but insisting that borrowers must transfer assets under management (AUM) before it will lend.

While SG Hambros will in fact still offer dry lending to new clients where there is a genuine convertible AUM opportunity in the short to medium term, some private banks are said to be tightening their lending criteria, which may cause concern for wealthy clients intent on borrowing. Do buyers  requiring large loans, who don’t wish to put all their assets with the same lending bank, face a dilemma over the coming months? Are fewer banks offering dry loans?

Why has this private banking change come about?

Some private banks have a target for dry lending and allocate a specific tranche of funds for this purpose. Once these targets have been reached or the tranche is exhausted, they may pull back from the market, as any organisation might once it has  reached a target objective.

A private bank is unlikely to entertain a new client if there is no credible opportunity for AUM, or a wealth management relationship, at least in the medium term. The exception to this is if the lending bank has access to Funding for Lending scheme monies.

At Anderson Harris we are working on a number of cases where there is no immediate AUM but the clients’ circumstances are such that there is a realistic chance these will follow, such as sale of a business or property. A prerequisite of a number of private banks is that clients transfer cash or other assets to them immediately on being granted a mortgage, in order to secure cheaper home loans, or have a condition that the interest rate will rise after say 12 months, if the cash or investment commitment is not followed through.

What can wealthy borrowers expect in the future?

Some private banks require a specific level of AUM they target from day one, while others take a more pragmatic view. It is worth bearing in mind that private banks have different balance sheets, depending on their locations and jurisdictions. So some of the private banks in the Channel Islands, Geneva or Monaco may be able to arrange a dry lend for the right client even if the same bank in London has reached its limit on dry lending.

The high-street banks are increasing their appetite in the large-loan market but as soon as the client’s circumstances fall slightly outside the norm, they generally can’t assist. The private banks then come into their own. Clients who would typically struggle with the high-street banks are those from overseas with low incomes, but who are asset rich and often over the age of 60.

For the right client, the private banks continue to offer competitively priced lending, typically on a Libor, or base-rate-linked basis, over a five-year renewable term. The best terms are typically 2 to 2.25 per cent over Libor for a loan backed with an element of AUM, rising to 3 to 3.5 per cent over Libor for a dry lend. If there is no immediate prospect of AUM, but a very realistic prospect in the medium term, then you could be looking at 2.75 to 3 per cent over base rate.

While high-street lenders continue to offer some of the most competitive rates for homeowners seeking large mortgages – with two-year fixes available at under 2 per cent – private banks offer a more flexible alternative. They will typically be a better option for people with more complex income streams, such as bonuses, trusts and offshore incomes.

In summary, it is a good idea to speak to a property finance specialist, such as Anderson Harris, who understands the day-to-day workings of the various private banks to ensure you so get the best solution for your circumstances.

Jonathan Harris
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Jonathan Harris

Help to Buy 2: Mortgage rates announced

10.10.2013

* NatWest and RBS  announced this week that their Help to Buy 2 rates will be pegged at 4.99 per cent for a two-year fix and 5.49 per cent for a five-year fix with no fee

* Halifax will offer a two-year fix at 5.19 per cent with £995 fee from tomorrow. All products will be available up to 95 per cent LTV

The above rates are pegged where we would expect them to be. A good credit score and affordability are key, with lenders applying normal criteria for high loan-to-value borrowing. This is only right as lenders should be lending prudently and only to those who can afford to repay their mortgage.

Having said all that, a couple taking on the maximum loan via the scheme – £570,000 – would need a combined salary of around £142,000, plus the £30,000 deposit and money to cover other costs – stamp duty, conveyancing, survey and other associated fees. They would also need a good credit history and minimal other financial commitments. If they then opted for Halifax’s two-year fix pegged at 5.19 per cent, they would be looking at monthly repayments of £3,396, which would represent nearly half their combined monthly net income. This is a considerable commitment so the lender will want to ensure that the couple could service it with relative ease. At the very top of the scale then, the scheme would suit a young professional couple with good incomes who haven’t had the chance to build up any savings.

When choosing a product, it might be worth borrowers opting for one of the longer fixes rather than a two-year deal, even though details of only one such product have been released from NatWest. There is little expectation in the markets that interest rates will rise in the next two years but over three to five years, we could well see a rate rise or two. A five-year fix will give more protection against rate rises, which is particularly important with high LTV loans as the borrower is unlikely to have plenty of spare cash to throw at the mortgage.

There has been much criticism around the rates offered via the scheme but this is partly to do with the fact that we have been spoilt with rock-bottom rates over the past few years.  Historically, anything around 5 per cent for a five-year fix is an excellent rate so to pay not much more than that to borrow 95 per cent LTV is competitive. The rates compare well with non-assisted high LTV products and these often have lower caps on the amount that can be borrowed so Help to Buy will be more far reaching in its scope.

Will other lenders join the party and offer Help to Buy products? Some may feel that they already have this sector of the market covered as they already offer high LTV deals but the introduction of the scheme will expand the number of options available to those with modest deposits. As other lenders come on board, we would expect the rates to edge down a little but it is a fact of life that borrowers will always pay a premium for a high LTV.

Contact Anderson Harris for more details.

Jonathan Harris
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Jonathan Harris

Help to Buy 2 brought forward – but which lenders will get behind it?

01.10.2013

The Government announced at the weekend that the second phase of the Help to Buy scheme will be launched on 7th October, rather than January 2014. This will enable borrowers to buy a new or period home costing up to £600,000 with only a 5 per cent deposit. The Government will offer lenders a mortgage guarantee for 15 per cent of the purchase price.

While there is still some detail which has not been ironed out, such as the cost of the mortgage guarantee to lenders and whether they will get capital relief or not, lenders are equipped to cope with applications and there are many would-be buyers requiring high loan-to-values (LTVs) champing at the bit to participate in the scheme.

Lenders have learnt a lot from the downturn and we are highly unlikely to see a return to reckless lending. Instead, underwriting will be tight because even with a government guarantee in the background the lender is still advancing a very high loan-to-value and will want to see evidence that the borrower can afford the mortgage. A squeaky clean credit history will be a must.

Which lenders will participate in the Help to Buy 2 scheme and what will rates be?

Part of the problem for lenders declaring their intent lies in the number of unknown factors. Even though RBS and Lloyds are committed to the scheme, they have not yet decided how much their products will cost. To participate in the scheme lenders will pay the Government a commercial fee for each mortgage. And if it is unclear what the Government is going to charge for the mortgage guarantee element, it is to be expected lenders can’t decide on their final pricing. It is worth noting there is likely to be differentiated fee pricing for different LTV brackets, reflecting the sliding scale of risk.

Some are predicting the rates are likely to sit between 4.5 and 5 per cent for a two-year fix at 80 per cent LTV. This is roughly 2 per cent more than the current market-leading rate for a two-year fix, however it gives the borrower the chance to get on the housing ladder. Ultimately,  increased competition among lenders should help push mortgage  rates down.

Buyers will need to weigh up the cost benefit of going for the Help to Buy scheme versus alternatives such as rising rental values in some areas. Property finance specialists Anderson Harris can help if you need advice: please get in touch.

Jonathan Harris
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Jonathan Harris