Super prime mortgage lending for London properties have enjoyed a price boom in recent years, with a surge in foreign investors vying to snap up the most luxurious homes, but is there a danger of investor fatigue and how tough is it for brokers to break into this competitive market? Enness were recently featured in an article from Mortgage Strategy, which tackles the issue and that very question (you can read the full article here.) Here’s what Hugh Wade-Jones, Director of Enness Private Clients had to say to super prime mortgage lending…
We had a large rush before the budget, with some very large purchase sizes. Our average loan size in the first quarter of this year was in the region of £2.25m. We have found since then the £2m market has dropped off quite a bit but there has been a huge increase in the £1m to £2m corridor.
We have seen a lot of the foreign guys have cracked on regardless. It has not had too much impact on them but with the British contingent, there has been a drop-off.
In terms of the stamp duty annual levy, there has been some scaremongering which has ruffled a few feathers but nothing concrete has been laid down. There has been a discussion and what comes to fruition will dictate what kind of year we will have. It think it will be very strong regardless.
On the private side, there are no rate sheets, hard or fast requirements. It is very much down to how the bank sees the individual and how much they want to do business with them. There is not a lot of money in lending because the margins are very small but if there is potential, private banks will forgo the immediate assets under management just for the promise of the relationship later.
By and large, you find the private banks split themselves into three categories. Those who are quite happy to do the lending. Then there are those in the middle who will want this amount of money but will let the client get a foot in the door if there is promise. Finally, there is the extreme who will say we have requirement of 25 per cent of whatever you borrow has to be under our management on day one.
It is not just about sticking money in an account the client can’t touch. If a bank can take over the running of a trust, which will generate fees. They are not fussed about the client chucking £500,000 on account, which will only earn them very little anyway.
The way we try and structure deals when clients do have to put money under management is to try and borrow against it. The bank will say you have to put down £500,000 but you can borrow up to 90 per cent of that cash’s value and that borrowing can be done at a quarter of half a percent so it is absolutely dirt cheap. The bank does not mind lending because it is good business for them with no risk.
Or if the client has cash offshore rather than it bringing onshore the bank will offer 75 per cent on the property then lend the remaining amount against the cash held outside the UK so the client does not have to pay any remittance. If you are talking about bringing £500,000 into the UK if the client are taxed at 40 per cent or 50 per cent that is a potential saving of £250,000.
In my experience the private banks are very clear as to what they are expect on day one. If a deal is put together on the basis of such and such coming across in 24 months and it is not there then I think bank is well within its right to renew the facility.
I have never heard, or experienced a situation where nothing has been implied for the client and the loan has been pulled because no money has been moved across. It does tend to be a case of over promising and under delivering on the client’s behalf.