If you earn more than £150,000 a year or have more than £500,000 in net assets (excluding your home), that makes you a high net worth individual. - and that can make mortgages more complicated. Read on, or listen to our new episode from The Mortgage Mum podcast is out now on all major podcast directories including Apple and Spotify.
It’s interesting that often the more money people have, the less they like to talk about it - but when it comes to mortgages for this group of people, it’s really important to get the right advice.
Why is borrowing different for high net worth individuals?
If you have high net worth and are looking to borrow for a mortgage against net assets or other property, you’re often restricted to a few lenders or private banks. This is because of the way you prove your income. It’s difficult to do this alone - you will need a broker who has relationships with private banks to negotiate terms for you. Another big challenge for high net worth individuals is proving your income - which we’ll cover in a moment.
What are net assets?
These assets can be shares, trusts, hedge funds, even a yacht or private jet. And while not usually classed as assets, cars and art can also be used as leverage against borrowing. So the first step if you’re looking for a high value mortgage is to speak to somebody who can identify your assets and give you a valuation.
How can I prove my income?
Lenders are typically looking for regular income, to reassure them that the mortgage repayments will be met. But a high net worth individual often has irregular income - it can come from bonuses or share dividends, hedge funds, or limited partnerships. Many lenders don't accept this type of income or situation which is why we need relationships with private banks.The right broker will know how to explore proof of income using your assets and find the right finance for you.
Why is flexibility important for high net worth mortgages?
If you earn your money in lump sums, you will want to pay off a big ‘chunk’ of your mortgage. With typical high street mortgages, overpaying by more than 10% incurs an early repayment charge - which can be a significant amount. You will want more flexibility about how you pay back the loan.
Does my net worth affect how much I can borrow?
Yes - and if you want a mortgage you will need a statement of high net worth. Often a lender will have a template that your accountant can complete and sign. This is used as your proof of income.
Is it hard to get a mortgage on a home worth over £1m?
There are many more million pound homes out there today - we have enquiries for £2 million homes too. But many lenders are not happy to lend that amount of money.
It’s less about your income and more about the lack of underwriting expertise. A £1 million mortgage usually means delays and lots of paperwork. That’s why we work with a specialist team that looks at private banks and specialist lenders.
Can I get a £1million mortgage on a self build?
Self build is becoming more and more popular. With a self build mortgage, after you borrow the money to buy the land, the rest of the loan is released to you in stages as the building progresses.
There are two main types of self-build mortgages:
Arrears stage payment mortgage - you pay upfront costs and receive a percentage of the value at the end of each stage.
Advance stage payment mortgage. This is a cost-based loan where the lender releases the money to you in advance of each stage of the build. You don't need as much cash at the outset.
Lenders will want to understand a lot about the build: what your plans are, your experience, and the people in your team. Self build mortgages are often interest-only which makes the payments a little bit more affordable.
Do high net worth individuals need life insurance?
Yes, absolutely, probably even more so because they have a lot to lose!
But also, if anything were to happen to you, it could cost the people around you money. Inheritance tax liability, for example, would be much higher for somebody with a lot of assets to hand over in the event of death.
How does life insurance work for high net worth individuals?
Life insurance pays out a sum of money if you die unexpectedly. Depending on the sum insured, your mortgage could be paid off so your family can stay in the property. But you don't just have to cover your mortgage, the money can be used for anything you like.
Another product - family income benefit - provides those you leave behind with an income rather than a lump sum. Critical illness cover is also important, and income protection is worth looking at, to keep the money coming in if you’re unable to work due to illness or injury.
What kind of business protection is available?
If you're a majority shareholder, you need to consider what would happen to your business if you weren't around - Shareholder Protection could be an important type of insurance.
If you personally are crucial to the future of the business, you may need Key Person cover. Essentially you're making sure that if you’re not there, the business can pay for somebody else to take over.
Talk to a broker
In any complex situation, it really pays to have a broker working on your behalf - and that’s even more true for a high net worth individual.
We understand the complexities of your situation. Your work might be international, you might be an expat. We also work with foreign nationals living in the UK where we deal with overseas personal guarantors.**
There's a lot to take into account, so you need someone with experience that will save you time and money and has great contacts. We can help you achieve your goals, so get in touch.
Sarah Tucker, Director, The Mortgage Mum
**Some of the products listed are not regulated by the Financial Conduct Authority, and we may refer you to a 3rd party for these services.