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Opinion > Investec

Why private banking is specialist

Peter Izard, BDM at Investec Private Bank | 17:10 Wednesday 6th March 2019

Ask any mortgage broker to define what ‘specialist’ lending is and their answer will probably encompass the following areas: buy-to-let, bridging, commercial finance, self-employed borrowers and even second charge lending.

While some brokers think the complex lending requirements of high-net-worth individuals (HNWIs) should be considered a specialist area, often they are not treated in this way. Furthermore, they do not fall into the remit of most mainstream lenders.

Out of the shadows

Just over a decade ago, self-cert mortgages and sub-prime lending would have been clear contenders for a place at the specialist lending table, but as the industry evolves, so does its definition.

The market is starting to see areas that have historically been considered specialist transition into the mainstream, such as lending to self-employed borrowers, which means we could soon see what is classed as specialist redefined again.

Private banking has in the past perhaps been perceived as more of a privileged form of lending as opposed to a specialist form, which may explain its absence from the specialist classification.

Lending to HNWIs, however, is not simply a case of increasing the lending amount, but instead offering a whole new tailored approach. So, should specialist banking be redefined to include private banking? We think so, and here’s why.

Why private banking is specialist

Many of the areas that fall within the accepted scope of specialist lending are also common features of lending to high-net-worth clients, with many of the same skill sets required.

The financial make-up of a HNWI is rarely straightforward. Such clients are usually entrepreneurial and can hold careers in various sectors, from accountancy and banking to sports and entertainment. As such, their wealth has very rarely been derived from working a standard nine-to-five job and their income usually comprises several facets, including stocks, shares, investments, property and even foreign currency earnings. All of which impacts the complexity of a mortgage application.

Private equity and City professionals, for example, are popular candidates for private banking as it is not just their current income that needs to be taken into account, but also any future liquidity events.

As well as taking a more flexible view of a HNWI’s income, the way our products are structured can differ vastly from that of a standard retail bank, which is where the specialist approach comes in.

We can offer a borrower not only a unique mortgage rate, but also a personalised product, designed around their needs. Private banks can offer features such as partial interest-only and the ability to multipart their mortgage, with segments of it on a three-year fixed rate, for example, and another part of their mortgage on a 10-year fixed rate.

Cross-collateralisation is another feature of private banks and means that if a borrower owns multiple properties, we can take a charge on each property, often resulting in a better rate for the client.

Why is it important?

For us, it’s important that private banking is considered in the same way that specialist banking is so that brokers understand when private banking is an option for their clients. Just like they would approach a specialist lender for bridging requirements, they can approach a private bank with a complex income structure or asset portfolio.

As the number of UK millionaires continues to grow, the likelihood of encountering a HNW client naturally increases; and if you do come across one, it is important to recognise that there are specialist options open to them.

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