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Opinion > Investec

The role of bespoke advice in a digital mortgage world

Peter Izard, BDM at Investec Private Bank | 07:27 Wednesday 16th January 2019

During 2018 – setting Brexit aside – the financial trade press was dominated by coverage of fintech and the buzz around robo-advice.

As the digital era continues to embed itself into the mortgage market, we are seeing an increasing presence from a new wave of online mortgage companies. 

In some ways, private banks are the polar opposite of such firms. This is not to say the digital revolution has passed us by, far from it: we are continuously looking at how technology can streamline the mortgage process for our customers.

Yet the bespoke service private banks offer is something which sets us apart from the crowd in an ever-competitive and digitalised marketplace. 

The meaning of bespoke service 

The word ‘bespoke’ is used a lot in reference to private banks, but what does it actually mean? In the digital era we live in, bespoke advice may be interpreted by some to mean the human touch and anything that sits outside of the mainstream. True bespoke service, however, is not about finding an existing product to match a client’s needs, but rather creating one that does. 

Something I am regularly asked is why we do not appear on sourcing systems. This is not an oversight on our part, but a conscious decision. The flexibility of private banks and the various configurations our products can take makes it hard to accurately portray our offering via such a channel. 

While we have product matrixes, these are often used as a starting point as to what we can offer clients. The first block in building a solution, if you will, rather than a rigid structure we follow. 

High-net-worth clients often require a holistic approach to their finances, with complex incomes and salaries part and parcel. Each client and their circumstances are unique, which means their mortgage also needs to be. 

How bespoke are private banks?

Most retail banks will offer clients the option of a two-, three-, five- or 10-year fixed or tracker rate, yet how many times have you encountered a client who just can’t decide or whose circumstances warrant consideration for all of these products? 

By not being confined by the same business model constraints as many retail lenders, we are able to offer clients a combination of all of the above – a type of pick-and-mix mortgage. For example, a high-net-worth client may have a major liquidity event on the horizon in two or three years’ time – such as the sale of a property, company, or stocks and shares.

As such, they may not wish to lock into a five-year fixed rate deal knowing that in a couple of years their financial profile is likely to change. Instead of remortgaging a few years down the line and risk paying a higher rate, a client may choose to put the first £2m of their mortgage on a two-year fixed rate, for example, and the remainder on a five- or ten-year rate. 

This is something a private bank such as us can do. The same principle can be applied to other aspects of the loan and whether it is repaid on an interest-only or repayment basis. Clients can decompartmentalise their mortgage and incorporate many layers into it, akin to a Russian doll.

There are also options for clients to benefit from their known liquidity events as the rate can be contracted to reduce in the future upon reduction of the mortgage. Our revolving mortgage product also provides benefit from liquidity events in allowing amounts to be repaid and then redrawn during the life of the agreed mortgage term.  

Cross collateralisation is another feature of private banks, allowing for security to be taken over a client's property or properties as well as assets such as investment portfolios or cash in order to secure better terms for the new loan.

So, while the new digital mortgage world has much to offer, for high-net-worth clients in particular, there is still much to be said for a bespoke solution, tailored to their needs.  

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