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.
Temenos partners with ClearBank for cloud payments
Banking software company Temenos has formed a strategic relationship with ClearBank to provide banks with a faster route to market for real-time cloud payments...
Unity Trust Bank registers 34% rise in profits
Unity Trust Bank increased profits by 34% in 2019...
Believe the hype – why explainable AI is a trend that’s here to stay
Technology has become a ubiquitous part of our day-to-day lives...
Piloting tech updates: ‘The bigger the bank, the harder it is to get anything done’
In the latest Medianett filmed roundtable session, we discussed how important technology is in the banking space, and what impact the industry expects it to have on its businesses in the future...
What banks need to know about cloud security
One of the most common perceived concerns when adopting the cloud is the issue of security...
OakNorth sees 95% increase in pre-tax profits
OakNorth Bank has announced a 95% rise in pre-tax profits in 2019 to £65.9m, up from the £33.9m recorded in 2018...
Redwood Bank signs up to Women in Finance Charter
Redwood Bank has announced that it has signed up to the Women in Finance (WIF) Charter...
Masthaven launches digital Women in Leadership programme
Masthaven Bank has launched a new Women in Leadership digital development programme for female senior leaders...
Protecting against supply chain disruption and the domino effect
Disappointingly, many UK SME business owners don’t understand their supply chains...
Confused about which Isa to choose? Hopefully this mini-guide will help…
We are now firmly in Isa season, so you’re likely to read multiple articles about the most competitive Isa products in the market and how best to make the most of your Isa allowance before the end of the tax year...
Garden shed entrepreneurs contribute £16.6bn to the UK economy
Entrepreneurs who run their businesses from garden sheds contribute £16.6bn annually to the UK economy, according to a recent study...