Bonuses may be back in the City and on Wall Street, but private banks are disregarding them as income, causing some wealthy homebuyers to seek better mortgage deals on the high street.
Demand for £1m-plus mortgages has increased in recent days, according to specialist mortgage brokers, following news that investment banks plan to pay higher bonuses for 2009. HFM Columbus, the wealth management group, says it is now receiving higher numbers of applications for seven-figure loans.
“The bonus brigade is back in town – demand from Goldman Sachs traders et al for £1m-plus mortgages is on the rise,” reports Gary Festa, a mortgage specialist. “Our sources suggest that Goldman Sachs’ bonuses for City traders are around the £1m mark, typically made up of a third in cash, a third in stock options and the remainder in deferred payments. A £300,000 or there-abouts deposit is the kind of figure we are seeing discussed.”
However, the private banks that traditionally provided these mortgages are taking a cautious approach – in spite of higher bonuses and lower interest rates than a year ago. “Some lenders are still dragging their feet and making excessive demands for security, typically in the form of very high deposits and unforgiving interest charges,” says Festa. “It is harder to swallow when Libor rates and the base rate are at historic lows.”
HSBC Private Bank and EFG will only consider applications reliant on bonus income after assessing an applicant’s earnings history and prospects.
“We look at each situation on a case by case basis and consider such things as the breakdown of their total compensation between salary and bonus, the payments received over the past few years, the company they work for and the sector in which they are employed,” says Andrew Morris, managing director of private banking for HSBC UK.
Brokers suggest that no more than 50 per cent of a bonus will be taken into account by HSBC, and only then if a pattern of payments has been established.
Fairburn Private Bank says it will count only one third of the average of the past three years’ bonuses. So, in the case of an applicant who has a £500,000 bonus for 2009, but none in the previous two years, it will add just £55,000 to basic income for mortgage purposes.
By contrast, some high street banks and building societies are more generous – and automatically count more of an applicant’s bonus when deciding how much to lend.
C&G, the mortgage arm of Lloyds Banking Group, used to consider 75 per cent of an annual bonus for borrowers applying through a broker. Last Thursday, this was reduced to 60 per cent, in line with other Lloyds mortgage brands. But the 60 per cent figure is used for all mortgage applications up to £2m.
Eleanor Ross of Lloyds Banking Group says: “For C&G, £2m is the cut-off point for our standard product range, but we would get an underwriter involved in all loans above £500,000 – and for Halifax it is £300,000. Even so, the underwriters would still use our standard policy that we take into account up to 60 per cent of an annual bonus.”
Barclays’ Woolwich brand will count 100 per cent of an annual bonus as income, if a mortgage applicant can prove it has been paid for two years. “The overriding consideration when dealing with bonus, commission, or overtime is its sustainability,” its spokesman says. To have 100 per cent of a bonus counted, applicants simply need to produce their latest payslip and the past last two years’ P60 taxable earnings forms.
Savills Private Finance is now recommending Woolwich to wealthy clients for this reason. “There does seem to be a bit more discretion coming back among some high street banks with regard to how they will treat bonuses,” says director Melanie Bien. “We have used Woolwich for a number of cases where substantial bonuses have been taken into account. If a track record can be demonstrated, then high-street lenders are increasingly willing to do something.”
