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New bonus regulation set to make large mortgage loans more difficult to secure


Almost a third (32%) of IFAs say that their clients are expecting at least half of their bonus for the 2010/2011 tax year to be paid in cash or deferred cash with the remainder likely to be paid as shares or share options, according to research from Investec Specialist Private Bank.

However, Investec warns that many of those people who accrue irregular or unconventional income through lump sum, equity based bonuses will struggle to have loan facilities such as mortgages agreed by some mainstream banks which have less flexible lending criteria.

Investec says that FCA proposals that 50% of bank bonuses should be paid in shares, share-linked instruments or via equivalent non-cash routes, could make it more difficult for many of these individuals to secure large mortgage loans.

Whilst almost one in 10 (8%) of IFAs questioned said their clients are expecting their bonus to consist almost entirely (91-100%) of cash or deferred cash, a further 28% understand that cash will account for less than 10% of their clients’ bonus payments this year. Investec warns that these individuals could be penalised when it comes to applying for large mortgage loans as many banks will look at the value of a clients’ property rather than their income and overall assets.

Jack Jones of Investec Specialist Private Bank said, “These findings show that while cash is still likely to feature bonus payments this year, many people will receive bonuses via non-cash routes such as shares or share-linked instruments. Although many of these individuals look set to receive significant bonuses, some will struggle to get mortgages and other personal loans approved due to the less flexible lending criteria adopted by some banks.”

Over three quarters (78%) of the IFAs surveyed say their clients are expecting to receive their bonus payment within a year or less, despite the forthcoming FCA regulation that will force those receiving a bonus, to defer up to 60% of it for three years or more. Investec believes that these results highlight the divergence in understanding between forthcoming industry regulation and the expectations of those due to receive bonuses.

Interestingly over a fifth (21%) of IFAs surveyed said that their clients have been discussing their financial plans with them earlier this year than in previous years. This is likely to be partly due to the introduction of a new 50% tax rate on incomes over £150,000, which starts from 1 January 2011.

Jack Jones continues, “We concentrate on the intricacies of a client’s finances in order to better understand their ‘true’ wealth, as opposed to taking the rigid stance adopted by many other lenders who remain focused on the property asset rather than the individual. We have the experience and expertise to structure a lending facility which accommodates their financial requirements.”

Investec Specialist Private Bank’s mortgage business is aimed at the top end of the market, with loans available exclusively to individuals with sustainable overall earnings in excess of £300,000 a year and an established personal net worth in excess of £3 million who are looking to borrow a minimum of £1 million2. Clients are typically purchasing properties worth more than £1.5 million.

Investec’s mortgages may be secured against a variety of assets including property, investment holdings and offshore deposits, and are available in a number of currencies. The offering is not limited to UK nationals and includes the purchase and refinance of UK property residence and investment properties.

For further information on Investec Specialist Private Bank mortgages, call Jack Jones on 0207 597 4601 or go to www.investecmortgages.co.uk.

Your home may be repossessed if you do not keep up repayments on your mortgage

1. Interviews conducted over the telephone with 100 Independent Financial Advisers by experienced interviewers, trained and supervised by George Street Research Limited. The interviews were conducted from the offices of George Street Research between 14th and 19th October 2010. The work was completed in accordance with ISO 20252 standards.

2. If a couple, the primary applicant must be earning £300,000 per annum or more