You might be surprised to hear that when it comes to applying for debt, high net worth individuals (HNWIs) find themselves at an immediate disadvantage. This stems from the inherent complexity of their income structures and finances.
There is a general saying that the wealthier an individual, the more complicated their finances typically are. Based on my experiences working in the prime property mortgage sector, I can confirm that this saying rings true.
Typically, we find their wealth can be spread across multiple jurisdictions and locked up in assets that offer little in the way of liquidity. As a consequence, they find themselves at odds with the rigid application processes employed by high street banks when seeking new financial products and services.
According to the research, 18% of HNWIs have been turned down for a mortgage in the past ten years
Simply put, the majority of mainstream financial service providers do not have the expertise or experience required to meet the nuanced needs of wealthy individuals. In turn, this is resulting in the UK’s wealthiest being denied mortgages.
To uncover the extent of this issue, Butterfield Mortgages Limited (BML) commissioned a survey of HNWIs in January 2021. The objective of the survey was to reveal how many HNWIs have been denied a mortgage in the last decade and the reasons why this had been the case.
So, what did we find?
Rejections running high
According to BML’s research, 18% of HNWIs have been turned down for a mortgage in the past ten years. What’s more, just over half (51%) of those who have either successfully or unsuccessfully applied for mortgages in the decade told us that they have been rejected at some point.
When exploring the underlying reasons behind these rejection rates, 78% of the respondents said their banks rely too heavily on ‘tick box’ methods when reviewing mortgage applications. Over three in five (62%) also acknowledged that their complicated income structures had resulted in their mortgage application being rejected.
These are timely findings, and I have no doubt that the covid-19 pandemic has only complicated matters further. Overall, the experiences of HNWIs are contributing to a general loss of confidence towards big banks. Just under-two thirds (62%) of the respondents told BML they have lost faith in their high street bank’s ability to properly and successfully cater to the needs of BTL landlords and property investors more generally.
Catering to the nuanced needs of the market
Despite the experiences uncovered from the BML survey, it is important to acknowledge that the general sentiment towards property remains strong. If we look at recent house prices indices, the average rate of house price growth remains above 5%. In fact, 2020 saw the fastest rise in residential house prices witnessed since 2015, according to Nationwide. Buyer demand is clearly present, and this extends to the prime property and buy-to-let segment of the market where wealthy individuals are typically concentrated.
To ensure that HNWIs can take advantage of future property opportunities, it is important that they seek out lenders who are equipped with the knowledge and experience required to meet their demands. Doing so will ensure their complex income structures do not serve as a disadvantage when applying for a mortgage.
