More specifically, they need lenders and brokers that have the skill, experience and resources to review each borrower and application on a case-by-case basis; to take in the full picture of the person’s financial profile, to understand the type of property they want to buy and why, and to assess their ability to repay a loan.
In essence, a more bespoke approach is required when working with HNWIs.
Lenders and brokers reliant on processing huge volumes of applications will, generally speaking, not have the structures and processes in place to operate in such a flexible manner.
Returning to the matter of rising interest rates – this economic shift over the past 20 months has only heightened the challenges that exist for HNWIs, thereby placing a greater onus on lenders and brokers to assist wealthier borrowers as they seek to navigate the mortgage market.
How higher rates affect HNWIs
For more than 13 years – between March 2009 and May 2022 – the BoE’s base rate resided below 1 per cent. It was never going to remain at such historic lows, which were largely indicative of economic turbulence stemming from the global financial crash, Brexit and the pandemic.
That rates would rise at some point was a given. As many who are longer in the tooth would also note, a base rate of 5 per cent or higher is also normal in the grand scheme of things – this was the general benchmark for much of the 1990s and 2000s, while the 1980s saw a base rate predominantly in double figures.
However, while a higher base rate is by no means atypical, the speed at which it has risen has undoubtedly created challenges for borrowers.
Jumping from an all-time low of 0.1 per cent in December 2021 to 5.25 per cent by August this year is a sharp rise, and coming after a prolonged level of such low rates, has placed a strain on many people who will have purchased properties with little consideration as to how such a shift could impact them.
HNWIs are no exception here. Again, while not featuring in the general discourse around higher rates and the impact on mortgage customers, HNWIs warrant attention and support.
Broadly speaking, HNWIs direct their investments towards high-value properties, such as those in prime central London. They may, for example, require a £5mn mortgage for the purchase of a £7.5mn townhouse in a prime central London postcode.
Coupled with the size of the mortgages HNWIs take on is the length of their terms. HNWIs investing in a second home or BTL property may take on mortgages that have five or 10-year terms, unlike the 25 or 30-year terms that most UK homebuyers will be able to access.
