Wealthy buyers hit by tougher lending criteria

Mortgage rates may be falling but tougher lending criteria is stifling many borrowers, including high earners.

Research by Investec has found the vast majority of high net worth individuals (HNWIs) have faced mortgage rejections and had to accept lower loan-to-value (LTV) ratios than they wanted because lenders were not able to understand their complex renumeration.

Its study with corporate executives, finance professionals and entrepreneurs with average earnings of more than £510,000 found 90% have been rejected for mortgages, despite applying as high earners/HNWIs.

More than four out of five of the respondents said they have had to accept a lower LTV or provide a bigger deposit to secure a mortgage in the past five years. 

The most common reason for this was their non-standard income – such as receiving a large part of their pay in bonuses or another form of discretionary income or being paid in foreign currency – which prevented them from accessing higher LTVs. On average they had to accept LTV reductions of 20 percentage points (pp).

On a £1m property, the difference between being able to access a 60% LTV vs a 80% LTV would mean having to find an additional £200,000.

More than half (54%) of HNWIs who have had to accept a lower LTV said they cut it by up to 20pp while a third (36%) said the LTV had been reduced by between 20 and 30pp. For a tenth (10%) the reduction was between 30 and 50pp.

Another 63% said they have been put off buying a home because of difficulties securing credit against their income or assets, while 56% have been deterred from buying an investment property.

Around a quarter of those questioned said they had secured a mortgage with a specialist bank such as Investec which was able to consider different income structures, while 36% said they secured deals with mainstream banks. The remaining 40% said they had used both.

The most common reason for rejection was the size of the LTV requested. Around 37% identified that as the reason while 33% said they were turned down because of the type of property they wanted to borrow against. 

A third said one of the reasons for rejection was because they were paid in a foreign currency. More than a quarter (26%) said they were told they had limited credit history in the UK while 20% said the nature of their employment such as being a partner in their firm was a reason for rejection.

Siobhan Sames, private banking team lead at Investec, said: “Both high-earning professionals and successful entrepreneurs will often struggle to secure the mortgages they want from conventional mainstream lenders due to the complexity of their incomes.

“High-earning professionals, for instance, are more likely to receive discretionary income (i.e. bonuses, profit distribution or carried interest) which may not be recognised as earnings by some lenders while entrepreneurs may face issues over proving their income despite running profitable businesses.

“It can be hugely frustrating for these HNWIs to be rejected for mortgages or unable to secure the deals they’re looking for. There are however a growing number of specialist banks which can offer personalised lending based on a deeper understanding of an individual’s circumstances.”