Remortgaging and private banks

04 Mar 2020

Peter Izard

Investec Mortgage Intermediaries team

Peter Izard, business development manager at Investec Private Bank, takes a look at the opportunities and the role of private banks in the growing remortgage market for high net worth individuals.

Remortgage activity looks set to continue to play a significant role in intermediary mortgage businesses in 2020 as ongoing political storms cast a lengthening cloud over the property market. It’s therefore important that brokers make the most of every prospect and are alert to opportunities they may not ordinarily consider.
 
One such opportunity is the growing remortgage market for high net worth (HNW) clients and there are a number of reasons why the very wealthy are alert to the benefits of remortgaging.
 
The first reason is that large loans can equate to large savings and so the bigger the balance, the greater the impact of reducing the rate. For HNW individuals who typically have outstanding mortgages of £1 million plus, there can be a significant financial benefit in switching to a lower rate.
 

Stamp duty

Another reason why demand for HNW remortgages is growing is the impact of changes to Stamp Duty Land Tax (SDLT) over the last five years. The changes that were introduced in 2014 resulted in an increasing tax burden as a property becomes more expensive to purchase So, while there is no tax payable on the first £125,000 of a property’s value, anything over £1.5 million is charged at 12% – and for additional properties where there is a 3% surcharge this increases to 15%.
 
Consequently, SDLT is a significant deterrent to HNW individuals moving home and we have seen a growing number choose to improve and extend their existing property instead. This is one of the drivers behind the increase in the number of residential basement developments in the wealthiest parts of London. For those HNW clients who want to fund large scale home improvements, a remortgage can be the most efficient way of accessing the required capital.
 
Indeed, remortgaging can present a good way of accessing capital for a number of purposes for HNW individuals, such as deploying the funds they release on investment opportunities that could provide larger returns than the cost of borrowing against their equity.
 
The varied and complex nature of the finances of HNW individuals means that a simple remortgage can be a useful tool to help them achieve their goals. So, while the mainstream market moves to become increasingly dominated by product transfers, HNW remortgages remain an area where brokers can continue to add real value. But they are not the type of deal that will suit every lender.
 

Complex requirements

As HNW individuals often have complex requirements such as multi-layered income or portfolios, comprising stocks, shares, carried interest, overseas investments and property, it often takes the experience and expertise of a private bank to handle these cases.
 
If networks restrict brokers to using only mainstream lenders and perhaps a couple of specialists, they could be denying them the chance to adequately help their HNW clients and this could prevent them from making the most of the remortgage opportunity in this part of the market.
 
This is why it is so important for brokers to have access to at least one private bank. Private banks are focused on meeting the complex needs of HNW individuals, with experts who are able to analyse every application on its own merits and create a solution that meets the specific requirements of the individual borrower.
 

Network panels

This demand for a specialist approach to HNW clients was acknowledged last summer by Sesame, which appointed Investec as the first private bank on its panel of lenders. The network recognised that private bank lending can offer its members something quite different to the traditional mortgages of high street lenders because of the specialist expertise they have in the HNW sector; and, as such, a private bank would offer Sesame members options they are unlikely to access elsewhere.
 
As the number of HNW individuals continues to grow, so too will demand from brokers for lenders that can take a flexible and bespoke approach. Private banks can help with all types of HNW cases, but in a flat property market, when remortgaging is so important to intermediary businesses, it will become imperative for brokers to have access to the correct tools to help them make the most of every opportunity.
 
A private bank can do just this, helping brokers and their networks secure more remortgage business, by assisting HNW clients in controlling their borrowing costs and releasing the capital they need to achieve their goals.
 
It seems reasonable, therefore, to assume that the longer the market is dominated by remortgage activity, the more likely we are to see private banks on a growing number of network panels.

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