Being wealthy does not guarantee you’ll get a mortgage. Actually, it’s probably more straightforward for the average working person to obtain a mortgage than someone who is a High Net Worth Individual. Alpa Bhakta, the CEO of Butterfield Mortgages, tells us why.
For those of you who don’t work in the property sector, it might come as a surprise to learn that wealthy individuals often struggle when it comes to successfully applying for a mortgage. In general, most people assume that a mortgage application from a high net worth individual (HNWI) would be relatively straightforward.
The fact they are wealthy should mean they are well-positioned to cover debt and have securities that can act as collateral. In reality, the process of applying and being effectively awarded a mortgage is far more complex for wealthy and ultra-wealthy individuals.
Alpa Bhakta works closely with HNWIs based both in the UK and overseas.
She found that there is one clear observation that more often than not rings true. And that is, the wealthier an individual, the more complicated their income structure and finances are likely to be.
Wealthy and ultra-wealthy individuals tend to have their capital locked up in illiquid assets spread across multiple jurisdictions. Some also might not have a regular monthly income stream, making it difficult for lenders to assess the applicant’s ability to make monthly mortgage instalments.
The challenges HNWIs face have increased in recent years due to high street banks’ rigid application processes when seeking new financial products and services.
Ever since the global financial crisis, these mainstream mortgage providers are less inclined to take on complex and large mortgage applications due to the simple fact that they do not possess the experience, expertise or knowledge to process them.
To reveal just how much of a problem this has become, Butterfield Mortgages Limited commissioned a survey of HNWIs in January 2021 to uncover their experiences when applying for a mortgage.
The results from the survey have reaffirmed the underlying complications wealthy individuals regularly face. The results revealed that 18% of HNWIs had been denied a mortgage in the past decade. In addition, 51% of those who have either successfully or unsuccessfully applied for mortgages have been rejected at some point in the past ten years.
So, what are specific reasons why such applicants find themselves at a disadvantage?
According to a survey by BML, 78% of wealthy individuals felt that banks rely too much on “tick box” methods when reviewing applications, failing to come up with a flexible mortgage solution tailored to the applicant’s needs. What’s more, 63% also acknowledged their complicated income structures had resulted in their mortgage application being rejected.
These experiences do not bode well for big banks, particularly at a time when people are managing the challenges that have come about as a result of the coronavirus pandemic. Just under two thirds (62%) of the respondents told BML they had lost faith in their high street bank’s ability to properly and successfully cater to the needs of buy-to-let landlords and property investors more generally.
A separate body of research commissioned by BML last year also revealed that a fifth (19%) of UK homeowners had lost faith in their bank in 2020 because of the lack of financial support that has been made available during the pandemic.
Where are HNWIs to turn?
HNWIs have faced consistent obstacles when accessing debt products, which has been heightened due to COVID-19. For this reason, any wealthy individual interested in applying for a prime property mortgage should consider lenders that exist beyond the high street.
By engaging with specialist prime property mortgage providers, these buyers will be able to deal with professionals who understand their nuanced needs. This is particularly helpful for non-UK residents and those who have assets based in international jurisdictions where legal knowledge is required.
As the UK slowly transitions out of lockdown, it looks as though we could see a rise in demand for property, from first-time buyers to wealth investors. For this reason, prospective buyers need to ensure they seek out lenders who have the experience and expertise to understand their financial situations and are willing to work with them.
Doing so will give buyers the confidence to pursue new property investment opportunities without the fear of not having the necessary finance in place.
If you’d like more information on mortgages for HNWIs, you can contact Alpa via the Butterfield Mortgages website here.
Read more mortgage-related articles, guides and general property news here.