Mortgage famine for high net worth borrowers

Borrowers looking for mortgages in the £1 million plus bracket are finding lean pickings from lenders, according to wealth manager HFM Columbus.

The situation has become so serious that the top end mortgage market is in danger of seizing up altogether.

“If you have a 35-50 per cent or so deposit to put down then yes, you may be able to find a private bank willing to risk its money – but the reality is that most borrowers in this high end bracket are City workers still to a large extent reliant on their annual bonus, which they have traditionally used as a deposit for their mortgage,” said HFM Columbus mortgage specialist Gary Festa.

But banks, he said, are shunning the bonus scenario, and are simply not taking them into account when calculating affordability.

“We have had clients whose basic salary has not changed for 10 years. They have received bonuses every year - including 2009 - but some banks are still saying that they will only lend on the basic salary, which is bizarre in my view.

“We have seen many examples in recent weeks where clients have the opportunity to snap up properties, both commercial and residential, at bargain prices.

“But for the most part the deals have been not gone through to completion because lenders are not prepared to provide the finance without onerous or ridiculous conditions,” said Festa.

“Now we are seeing rising rates, with the private banks citing a climbing Libor rate, and in our view the situation is likely to deteriorate even further.

Typical deals currently being arranged via the High Street lenders are three year tracking mortgages at 3.89% over the Bank of England base rate, and two year fixed rate deals at 3.99%.

“The lending rates are not so bad – it is the arrangement fees which can be crippling: put down a 40 per cent deposit and the borrower will get off relatively lightly with a 0.5% fee,” added Festa.

“But it will shoot up to a phenomenally expensive 6.19% for those borrowers who can only put down 25%,” he said.

“Private investment banks typically quote arrangement fees up to 2% with tracker mortgage rates up to 3% above the current three month Libor rate, which gives a borrowing rate of around 4.25%,” said Festa.

“That may not sound so bad now but what happens when the Bank of England base rate rises to say 4%, which it probably will over the next few years?” he added.

A worrying new trend is to offer a “fair” rate with a reasonable fee as long as the client deposits a very large amount with the bank that “cannot” be withdrawn from them whilst the mortgage is live. “You might as well just borrow less,” said Festa.

“Failure to lend at the higher end of the market has a knock on effect, impacting negatively on the wider market as lenders would be making even less money and therefore be even more reluctant to lend,” he added.

“That said, there are some rays of light out there: as a broker primarily dealing with the high net worth end of the market, we have exclusive arrangements with some of the foreign investment banks which have not turned their back on the UK mortgage market.

“While more positive lending data shows an overall move in the right direction, it will do little to dispel the view that housing market activity continues to be suffocated by very tight lending conditions and stretched affordability ratios," said Festa.

“If the banks are really serious about getting the market moving, they should be less greedy and lower their arrangement rates, improve the rates and conditions while taking a more realistic view on risk.

“Only a couple of years ago all the banks were fighting to win the HNW clients mortgage business and that time will return again, possibly in the not too distant future.”

For more information, visit hfmcolumbus.co.uk