There’s a great deal in the press at the moment about the record low interest rates on the high street, and the value in revisiting your mortgage product for the chance of a better deal. However, it’s not only the high street where opportunities are improving; clients are also benefiting from revisiting their private banking relationships.
When a client enters a mortgage with a private bank, which tends to be over a five-year term, they get a loan (usually on an interest only basis) and a relationship with their private banker. If you have a private banking relationship which goes back, say, five years, it’s worth revisiting because you might not have as good a relationship as you could, and therefore the best mortgage terms.
The private banking sphere is becoming more competitive, with private bankers willing to be more flexible on mortgage criteria to secure a long-term relationship with a client. For example, it’s now possible to enter a private banking relationship with a dry lend (i.e. placing no assets under management (AUM)), or less AUM than they would previously have been allowed.
Clients are nervous to consider alternative banks as they tend to have built up a relationship over a long period of time, but a broker can look at the potential for saving money.
With the announcement that Libor will be phased out by 2021, it’s unknown exactly how banks will be effected. For those clients who entered a loan with a private bank in the last few years, when it comes to re-mortgaging Libor will no longer apply, so their options could be a lot more expensive, depending on what the outcome is.
Revisiting the private banking relationship now, while the rate is certain, could be beneficial in the long run.
For example, I recently worked with a client who had taken a mortgage with a private bank in 2013. The mortgage was worth £4million, and the property was purchased for £7million at the time. The client had placed £2million AUM and paid an interest rate of 2.5% + base rate.
When the client approached me in 2017, the property was valued at £10million; on speaking with other private banks, I was able to raise the mortgage to £6million, releasing £2million back into the client’s pocket. Despite the client being requested to place £1million AUM with the new bank, they netted £3million as a result of the new relationship.
This enabled the client to make the most of his equity, reduce the amount of AUM, and benefit from a cheaper rate of 1.75% + Libor.