The MMR paper stated there was weak support for exempting HNW customers from mortgage regulation completely, but said its approach would be based on the following:
– Disclosure – A tailored approach will apply
– Advice – Interactive sales may be conducted on an execution-only basis
– Responsible lending – requirements will be set at a higher level than for mainstream mortgages
The regulator has also altered its definition of a HNW customer. In MMR CPII/31, the FSA proposed to define a HNW customer as having a minimum net annual income of £1m or minimum net assets of £3m. In the final rules, the FSA defines a HNW mortgage customer as someone with a minimum annual net income of £300,000, or minimum net assets of £3m.
In response to feedback from the industry, the FSA amended its proposal requiring firms to submit a statement confirming their client meets the definition of a HNW mortgage customer. The FSA will now allow firms to use evidence that they have obtained through their business relationship with the customer, for example, if they manage their assets.
As proposed in CP11/31, the FSA is allowing a HNW mortgage customer to get a mortgage on an execution-only basis, even where the sale is interactive – provided the customer has confirmed in writing that they are aware of the consequences of losing the protections of the rules on suitability.
The FSA has ruled that lenders may base their assessment of affordability for HNW mortgage customers on both the income and the assets of the borrower. They must also consider the expenditure of the borrower.
The regulator added that interest-only rules continue to apply in their entirety to HNW mortgage customers.
