High Net Worth Mortgage

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High Net Worth Mortgage

Brian Keane talks us through high net worth mortgages, and why it’s so important to seek advice.

How does a high net worth mortgage work? What are my options?

High net worth mortgages are really just normal mortgages, but they benefit from more bespoke underwriting. They are based specifically on the client’s overall financial circumstances.

Most high street lenders’ mortgages are very much process and rule driven. They have various caps in how much they can lend and quite strict affordability models that need to be adhered to.

But underwriters for high net worth mortgages can be a bit more flexible. They can look at the overall case and take more of a holistic view of the client’s overall circumstances. The key thing, really, is to look at all the details and not just stick to dogmatic rules and conditions.

Why are mortgages for high net worth individuals so difficult?

They aren’t, necessarily. It depends – if you try and do them yourself then yes, they are difficult. You need to know how to present a case to a lender because they’re underwritten on a case by case basis.

Lenders need all the background and soft facts in terms of overall asset position, total income and where the income comes from. An underwriter needs all the details to make the right decision, rather than just stick to rules such as “we can lend this client 4.49 times their earnings.”

The case needs to be presented in the right way and for that, clients really should be talking to a broker who knows what they’re doing. High net worth mortgages tend to be for higher amounts – and occasionally the actual mortgage level needs to be approved by a lender’s board members.

Sometimes internal politics kick in with these lenders. Nobody wants to present a case to a board member without all the information being provided. So people need to understand that more information will be requested than normal – but there’s a very solid reason. All that detail increases the chances of either the underwriter or the board member signing this off and saying yes to the mortgage.

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Who qualifies as high net worth?

There are no set criteria or a definition that covers every lender in the market. But by and large, we’re talking about a mortgage level in excess of £1 million, or if there are investments and savings in the background of £1 million or more.

While that generally will qualify for high net worth underwriting, you won’t always need it. We can arrange a £1+ million mortgage for somebody earning significant levels of employed salary and bonus without a specialist underwriter being involved. It could be the sort of case we could put through the high street rather than a specialist high net worth lender.

If you are looking to borrow £1 million plus, then the best advice is to talk to a broker – obviously I’d hope it’s Davidson Deem, but it needs to be a broker with experience of how to present cases and which lenders to approach in these circumstances. We will be able to package your case correctly to get the right decision on the mortgage.

How much can I borrow and what sort of deposit is needed as a high net worth individual?
It’s very flexible. Ideally you would need about 15% as a deposit – potentially a bit more with some lenders or less with others.

In terms of borrowing, lenders are generally a bit more cautious as the value of the property goes higher. They tend to ask for slightly bigger deposits.

If you’re buying a property for £10 million, it could drop significantly in value because there’s a fairly limited number of buyers in that market. So lenders tend to build in a bit more margin of safety in the deposit.

However, if we’re going down the high net worth underwriting route, a client may have another property with little or no mortgage on it, an investment property or a property abroad. They might have a significant investment portfolio that they don’t really want to touch because it’s not the right time to take the money out of their investments.

With high net worth cases, lenders may be able to gain more security by taking a charge over one of the other properties or assets.

So you don’t always have to have a 15% deposit – the key thing is talk to somebody who knows what they’re doing – we can look at all your circumstances to present the best way of taking things forward.

Do high net worth individuals need life insurance?

Very probably. It’s somethign you should include as part of a full financial review. High net worth clients generally will need Inheritance Tax planning advice, Trust advice and potentially Capital Gains Tax advice.

They certainly need to have their overall circumstances reviewed to make sure that if the worst were to happen they’re not going to lose the roof above their heads. A review will look at their goals and needs, their overall assets and liability position.

You need to talk to somebody with the full wealth planning set of tools, beyond the mortgage itself.

Can high net worth insurance cover my listed property?

The worst thing here would be just to go to a price comparison site and buy based on the cheapest price. If a property is listed, standard policies on those websites are not really going to cover the potentially significant rebuild costs on that property.

Depending on whether it’s grade 1 or grade 2 listed, you will definitely need insurance, ideally with a specialist insurance broker that’s used to covering high value items and listed properties. A specialist broker will potentially arrange cover with the likes of Lloyds of London or other specialist insurance providers.

How can a mortgage broker like Davidson Deem help a high net worth individual?

The key thing is that an experienced broker will look at all of the client’s circumstances – not just what their taxable income is, but also their asset position. We’re able to present the case in the right way and talk to the right underwriters. We look outside the normal box, if you like.

We know how to present you and who to approach when the standard lending rule book isn’t necessarily appropriate. It tends to be with private banks like Coutts or Hamdens.

So talk to a broker that’s experienced in dealing with high net worth mortgages – hopefully Davidson Deem – but be sure to take advice.

Your home may be repossessed if you do not keep up with your mortgage repayments.