Intermediaries whose clients look for mortgages in the millions rather than the thousands would, in the past, typically need to turn to a private bank.
To be accepted for a private bank loan, borrowers must meet the bank’s asset under management (AUM) requirements, which often stipulate that 50% of the value of the loan advanced to the borrower must be invested with the bank.
However, Simon Gammon, managing partner, Knight Frank Finance, said there had been a definite shift over the last two years in the appetite of the high street to offer large mortgages, giving wealthy borrowers more options for their finances.
Challengers such as Metro Bank and established high street players including NatWest and Barclays are courting the million-plus mortgage borrower with lower rates and a no-strings-attached mortgage deal. This is referred to as dry lending, and means the borrower does not have to invest any assets on condition of obtaining a loan.
“This may be because the high street lenders are struggling to hit their targets perhaps because the number of people buying has fallen,” said Gammon. “It could also be because the profile of the high net worth borrower; less arrears, good income levels and assets, is attractive to banks.”
Gammon said it is now possible to access loans of £5m to £10m from the high street and where the client’s situation is acceptable to these lenders, the pricing of the loan is “considerably better”.
Private bank flexibilities
As the high street chases high value lending, brokers have reported a change in attitude from the private banks.
In his recent blog for Mortgage Solutions, Antonio Michael, head of Enness Private Office, wrote: “We’re seeing a real trend among private banks who are reducing the amount of AUM required from clients, with some not asking for assets at all from day one, as long as they can see liquid assets (a portfolio of stocks or shares with another bank) in the background.
“This means the bank will offer them the mortgage, knowing they have the wealth and business they prefer of a client, and the banker will have developed the relationship.”
Michael said he has seen flexible terms offered from Standard Chartered, Brown Shipley, SG Kleinwort Hambros and UBS, adding, “it is clear many are relaxing their criteria to attract quality clients”.
HSBC Private Bank and Credit Suisse have also been reported to offer mortgages without AUM requirements on a strict selective basis.
A real contender
Metro has been praised by brokers as being a real contender for the traditional private bank client, and is regularly offering loans of between £6m and £8m.
Charles Morley, director mortgage distribution at Metro Bank, said it had an appetite to increase its lending in this area and offered a tailored service to clients looking to borrow more than £1.5m. “We have a front-end intermediary team and underwriting division working closely with the broker community,” he said.
Ian Gray, senior partner at Kinnison Property Finance, said: “Dry lending is the correct way to approach a new client. The bank should be incentivising the client to invest their assets with them, not insisting. It is not correct for private banks to say you must invest with us to get a mortgage.”
Both the consumer and the broker stand to benefit from the competition for high net worth mortgage business.
“We’ve had situations in the past where we have had to tell a client the only way we can get them the mortgage is to meet the bank’s AUM requirements,” said Knight Frank’s Gammon. “The market is improving on product choice and flexibility which is only to the benefit of the consumer.”
While the high street may have the appetite to lend to wealthy mortgage clients, it still has some way to go before it can compete with the private banks on tailored underwriting.
The high street needs to get a number of factors right before it can make a sustained challenger for private bank mortgage clients, explained Kinnison’s Gray.
“The high street can still be very tick box in their approach to underwriting high net worth applications, they need a global thinking attitude,” he said.
“They need former private bank BDMs and underwriters on their team, who understand the level of flexibility required by wealthy clients.
“They need to do away with penalties on products and offer a true interest-only proposition and they need to give large loan staff the ability to assess these applications without being bogged down with volume underwriting of low-value loans,” he added.