Taking a holistic view of a US law partner’s income to secure property
How does Investec assess foreign currency income and assets when examining affordability?
This is a question we get asked frequently, because not all lenders have the ability to look at complex income streams such as foreign currency or lumpy profit distributions. We understand that if you’re a partner at a law firm, your income structure will vary and may comprise elements including monthly draw, profit distributions and a bonus element, some or all of which may be in a foreign currency. You may also have income generating assets such as overseas property.
“Partners taking their annual distributions in a foreign currency can sometimes struggle to get a mortgage through the high street”, explains private banker Chris Duck. This would again exclude a number of lenders as many lenders withdrew from foreign currency mortgages following the introduction of the EU’s Mortgage Credit Directive, which imposed more stringent controls and processes.
Chris continues “We also have to consider our client’s personal situation, they might live abroad or have substantial assets overseas, as well as receiving a portion of their income in another currency.”
We also have to consider our client’s personal situation, they might live abroad or have substantial assets overseas, as well as receiving a portion of their income in another currency.
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Where we differ from some other lenders is that we’re able to take a client’s foreign earnings and assets into consideration when we’re looking at affordability, something we don’t see a lot of other lenders considering when they’re working with partners at global law firms.
Beyond your income, we understand that if you’re working at a global law firm, you don’t have a lot of time to give to things like your personal finances. We work with a lot of partners who bill down to every six minutes, so every minute they have is precious. They need a lender who can move with urgency and pace, something we’re well versed in doing.
Chris adds “A further consideration is thatbecoming a partner at a law firm usually entails a significant capital commitment, which can have an effect on apparent cash flow, recent law partners can find themselves stretched when it comes to securing a mortgage.”
As such, you will often require a high loan-to-value (LTV), which can be another stumbling block for some lenders, even those who have experience in underwriting self-employed mortgages based on just two- or three-years’ accounts. We've recently helped a number of partners with LTVs of up to 95 per cent.
Emily Bernstein, Private Banker
“Clients often come to us when they’ve looked for a mortgage elsewhere, but have found such lumpy income to be too much of an obstacle.”
Chris Duck, Private Banker
“The client knew what they wanted to achieve in terms of the home renovations but didn’t know the exact costs or timing of when invoices for payment for the works would need to be met, so they required flexibility in the structure to allow them to draw down as and when needed. ”
Emily Bernstein, Private Banker
A particular client comes to mind; I recently helped a senior partner in a leading US law firm to purchase a family home in London, their first investment into the UK property market. The client received their income in US dollars, with large profit distributions and annual bonus. With this in mind, the client wanted an interest-only mortgage, with capital reductions repaid each year on these liquidity events. They also wanted their USD earning to be considered.
Clients often come to us when they’ve looked for a mortgage elsewhere, but have found such lumpy income to be too much of an obstacle. Many will only consider base salary or will only look at a fraction of a client’s profit distribution or bonus. Others will only consider income paid in pounds, while some lenders won’t look twice at a mortgage over 85% LTV. The algorithm can’t see the bigger picture. However, we have a wealth of experience in using profit distributions and bonuses when assessing affordability.
My experience in helping partners in law firms has shown me that it’s the little things that count, especially given they are so time-poor. In this case, after an initial meeting and fact-finding exercise, we approved their mortgage in five working days and they were able to quickly purchase their dream family home. A simple solution for a client with a bespoke need.
We have a team of specialist FX dealers who work with our clients on foreign currency requirements day in day out, so we have no problems taking into account foreign currency income. We also have a team of highly skilled financial planners available so clients can plan for liquidity events, such as bonuses, hedging against future rates or planning investment strategies, depending on the client’s requirements. This is just one example of how we can be flexible for our clients, another is in how we structure a mortgage. For example, we are able to structure mortgages/add additional tranches during the life of the client’s loan with us if their circumstances/goals change during the original loan periods.
Chris Duck, Private Banker
We recently helped another client in this way who needed an increase on their existing facility in order to refurbish and renovate their primary residence, including a complete replacement of the existing kitchen and bathrooms. The client was an equity partner at a global law firm who earned their income in USD. The client knew what they wanted to achieve in terms of the home renovations but didn’t know the exact costs or timing of when invoices for payment for the works would need to be met, so they required flexibility in the structure to allow them to draw down as and when needed. The client had existing loans with us and had a good track record of previous capital reductions, so the decision to get to ‘Yes’ was rather straightforward.
We were able to add a revolving facility to an existing 14-year loan, allowing them access to the funds as and when required. Perfect for paying down invoices intermittently. The client could then get on with the necessary works, with the peace of mind that all payments could be made in a timely manner.