High-street lenders may be turning away borrowers looking for large and complex mortgages, but the doors to some of the private banks are still very much open for business.
Private banks have not felt the effects of the credit crunch as strongly as some mainstream lenders. They offer mortgages on a bespoke basis, usually only to clients who have a certain level of assets, so have not been swamped by applications. Also, as they do not offer the kind of discount rates seen on the high street, private banks have not had to reprice mortgage rates at the same pace as some mainstream lenders.
So, after years of being undercut by the big institutions, the kinds of deals available through private banks are now, finally, looking attractive.
“The end may be nigh for £1m-plus mortgages on the high street, but private banks are still very much writing business, and their pricing is probably better,” says Paul Welch, managing director of Clegg Gifford Private Clients, a high-end mortgage broker.
Private banks do not have set mortgage deals that they market in the way mainstream lenders do; their rates are calculated on an individual basis and depend on the size of loan and the client’s asset portfolio, as well as their income. Neither do they tend to have maximum loan sizes or stringent loan-to-value requirements.
“There are no rate sheets or rigid criteria – more a set of underwriting guidelines,” says Christian Borner, head of banking products in the UK at UBS Wealth Management. “But there is still very much an appetite to lend.”
Melanie Bien, director at Savills Private Finance, the broker, says two people could go to a private bank tomorrow wanting to borrow £1m to fund similar properties and easily come out with different pricing.
She says rates depend on the client, not the property, and the kind of relationship they – or their mortgage broker – has with the bank.
However, as a guide, brokers say rates of around one percentage point above base rate are fairly common. Savills, for example, has some exclusive rates of between 5.99 per cent and 6.49 per cent. Coutts currently has a fixed rate of 6.2 per cent and a variable rate of 6.99 per cent.
These rates might have looked fairly expensive a year or two ago, when mainstream lenders were commonly offering rates in line with base rate or even lower than base. But now they beat most of the short-term offers from the high street banks. Coutts’ rates are in fact cheaper than they were a year ago.
Welch says private banks can also be more flexible on how they lend. Investing a sum of money with the private bank could trigger a better rate, for example.
Banks might be able to base their lending on weekly Libor – the underlying rate that determines banks’ costs – rather than three-month Libor, which is significantly higher. They may also be willing to secure lending on assets held elsewhere – such as businesses, investment portfolios and other properties, and even yachts or private jets. Mainstream banks tend only to base lending on visible income.
Torben Nielsen, head of balance sheet at Barclays Wealth, says the bank takes an almost institutional approach to the way it assesses clients’ assets and liabilities in order to price their loans. “Clients can have complex balance sheets with different sources of income,” he says. “We can take a complete holistic view.”
Also, mortgages secured through private banks do not tend to have early repayment charges and initial arrangement fees are more palatable – typically up to around 1 per cent of the loan amount.
The catch is that not everyone will qualify. Borrowers generally have to fulfil certain criteria, such as having a minimum level of investable assets or income. They may have to be accepted as a client of the bank and be willing to open other accounts or investments.
Also, while the high street lenders might impose maximum loan sizes, private banks tend to have minimum loan sizes, typically of around £500,000. This reflects the fact that the mortgages offered by private banks are often complex. Clients may, for instance, want to borrow in different currencies or through a corporate entity or investment vehicle. They may also want to borrow many times their income.
“Large mortgages tend to be unusual,” says Borner. “Private banks know and understand their clients and have a history with them, which makes it easier to meet their requirements.”
Also, using a private bank should mean better service.
“People are dealing with one manager so the process is much easier,” says Andrew Morris at HSBC Private Bank. “There is no form-filling and the manager will have a good idea of what assets you have, so will be able to act quickly.”
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