You would think that arranging a mortgage for a high income earner would be easy but it’s often the case that the higher the salary, the more complex the process of securing a mortgage can be.
A recent mortgage application received by Investec from a couple living in London illustrates some of the issues that clients of this type can face.
The main applicant was a US citizen and the CEO of an international firm based in the UK. His wife was British and looking after their two young children.
They had made an offer of £2.35m on a large property based in central London and wanted to borrow £1,975,000 which meant a mortgage of just under 85% loan-to-value (LTV). Having purchased the property, they then planned to spend a further £360,000 of their own money carrying out extensive renovations which included an extension, new kitchen and new bathrooms.
The renovation process meant that they wouldn’t be occupying the property for approximately six months, during which time they would live in rented accommodation nearby.
This deal presented a number of challenges. Specifically:
1) The main applicant was not a British citizen.
2) The loan to value ratio was high, at just under 85%.
3) Although the applicant’s income was high (£580,000 including bonuses), his full bonus income needed to be taken into consideration if the deal was to work.
4) The house would be vacant for six months after completion, whilst renovation work was undertaken.
In addition, required the flexibility to overpay their mortgage each year, so that they could use the main applicant’s annual bonus to reduce the outstanding balance as quickly as possible.
Nigel Bedford, senior partner at specialist mortgage broker largemortgageloans.com who advised the clients, (pictured) explains how he went about placing this case: “There aren’t many lenders that will consider this type of deal and, after due consideration, I decided to speak to Investec. Brokers are sometimes put off dealing with private banks because they believe their client has to have an existing relationship with the bank and have assets under management before the bank will consider a mortgage application.
That’s certainly true of some private banks but not Investec, which is happy to accept mortgage applications from borrowers with whom they do not have a pre-existing relationship.”
Andy Jones, a Private banker at Investec, took responsibility for the deal and visited the client in his office. He concluded that the applicant’s US citizenship and salary/bonus income was not an issue and neither was the high LTV, or renovation work.
Jones constructed a bespoke deal based on a lifetime tracker linked to Investec’s Base Rate plus 3.75%. As they paid down their mortgage each year, the rate fell as the balance dropped below key LTV thresholds. At 80% LTV the margin dropped to base rate plus 3.50 %, then 3.00% at 75% and 2.50% at 70%.
In addition, the property was revalued as soon as the renovation work was completed and the increased valuation reduced the LTV to 75%, resulting in a lower charging rate. When the client subsequently made a capital repayment using his bonus, the LTV dropped even further to below 70%.
Nigel Bedford concluded: “The key to success with this deal was being able to work with a lender that was comfortable with this type of higher value application and was willing to be flexible and tailor a mortgage which met the borrowers specific requirements. Investec has a ‘can do’ attitude and having a Private Banker such as Andy overseeing each application makes a huge difference.
Because of the bespoke nature of these types of mortgages, brokers won’t find deals listed on sourcing systems. It’s a case of knowing which specialist lenders may be able to help and also how to work with them to construct a suitable deal”.
With thanks to Investec and Largemortgageloans.com senior partner, Nigel Bedford
