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.