In 2017, it was reported that Beyoncé and her rapper husband Jay-Z had taken out a $53m mortgage on their $88m mansion in California. The couple, who have an estimated combined net wealth of around $1.25bn, reportedly secured a rate of 3.4 per cent until 2022, with monthly mortgage payments of around $200,000.
Other billionaires have also borrowed to buy, such as Facebook founder Mark Zuckerberg, who reportedly secured a $5.95m mortgage in 2012.
Technology billionaire Elon Musk, who has an estimated net worth of $23.4bn, has also reportedly taken out five ‘monster mortgages’ on his properties in California.
Musk’s $61m of mortgages reportedly equate to monthly mortgage payments of around $180,000, with an initial fixed rate of 3.5 per cent.
So, why do high net worth individuals (HNWIs) choose to use a mortgage to fund their dream property instead of using their wealth to buy outright?
The need for a mortgage
High net worth individuals are often asset rich but cash poor.
On paper they might be worth vast sums but their wealth can be tied up in business ventures, deferred bonuses or long-term incentive plans. Accessing such funds might mean sacrificing a stake in their business or surrendering some influence over its future – neither of which may be appealing.
It is not always the case that HNWIs have a couple of extra million pounds just sitting in the bank readily available to fund a property. Even if they do, they may not wish to tie their cash up in this way.
Many of these individuals are entrepreneurs and as such they may want to keep some of their wealth at their disposal, ready to invest in a new business venture as and when it presents itself.
A mortgage allows them to obtain property without limiting their ability to invest elsewhere, or surrendering any of their current portfolio.
The current record low mortgage rates are an added incentive for HNWIs looking to maximise their net return on investment.
Fixing into a rate can ensure clients are not exposed to any market fluctuations, while borrowing at a low mortgage rate means they might see greater returns by investing in other sectors.
You don’t need to be a celebrity or a tech genius to use a mortgage to fund a prime property. Many wealthy people look to the mortgage market and brokers for advice.
As you’d expect, the likes of Beyoncé and Musk do not simply walk into their local bank branch to secure their ‘mega mortgages’.
In my next article I will be looking at the role private banks can play in helping such clients secure a mortgage.