Traditional lenders have set limits on how much they can loan based on an applicant’s income, usually up to 4.5 times. However, high net worth individuals are not subject to the same restrictions. Private banks can take a more comprehensive approach by considering additional assets like investment portfolios, stocks, shares, and overseas finances when evaluating loan approval.
According to Mr Sykes, private banks adopt a more nuanced approach to lending. They can take into account income generated from complex structures such as offshore trusts or assets, rather than just considering employed or self-employed status.
In theory and practice, it’s possible to secure a mortgage even without a regular income. The key is to demonstrate how you will generate the funds to pay off the mortgage and maintain your lifestyle. Ross Lacey, director at Fairview Financial Management, explains how private banks factor in investments and their potential income to determine affordability.
Ashley Thomas of Magni Finance recounts a case where his firm supported a client who had sporadic income as a property developer. The client only received income every few years when a development site was built and sold. While a high street lender would have averaged the income over two years, a private bank considered the long-term view and weighed the client’s assets, making the loan feasible.
Mr Lacey explains that in some cases, a bank may offer a loan but require the borrower to hold two years’ worth of interest payments in an account with them to service the debt. This is more common for individuals with lower incomes but significant assets.
Interest rates at private banks
However, this level of service and flexibility comes at a cost. Interest rates on loans from private banks are often higher compared to those from traditional lenders.
Private bank premiums typically range from 0.5% to 1%, in addition to higher fees such as a flat 1% fee payable to the bank. Additionally, they are less likely to provide freebies like no-cost valuations.
Nonetheless, there is room for negotiation. As Mr Thomas suggests, borrowers can discuss personalized terms with the lender, especially if they have a larger loan or can bring additional assets under management, such as savings.
Various loan options offered by private banks
Private banks may also facilitate different types of lending beyond traditional mortgages for property purchases.
One option is a lombard loan, where a loan is taken out against another asset, and the funds are used to buy a property. For instance, it’s possible to obtain a lombard loan against a stock portfolio, transferring the stocks to the bank. The bank then grants funds as a charge on the assets, which can make these loans cheaper than conventional home loans with an interest rate at the Bank Rate (currently 5.25%) plus 1%.
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