To the outsider, it may seem nonsensical that people who have a net-worth in the millions can still be denied mortgages. And yet this happens frequently.
High net-worth (HNW) individuals present unique challenges to mortgage providers; challenges that render them unfavourable clients in the eyes of some conventional lenders.
But what is it that can make HNW mortgages particularly complex?
One of the most common reasons why a HNW borrower is turned back by mainstream lenders has to do with his or her irregular sources of income.
The reality is that a significant number of HNWs do not receive a monthly pay cheque, making it difficult for them to prove they have a set income that can be documented by conventional lenders.
Indeed, some may not have an income at all.
For some wealthy individuals, incomes may be sourced from a diverse financial portfolio spread across various assets and locations.
Typically, the wealthier an individual, the more complicated their finances are.
At a time when many banks apply a strict set of metrics to inform their decisions, ranging from an applicant’s employment status and existing debt through to credit history and income sources, the complexity of HNWs’ finances proves too much.
Regulation made banks less flexible
That leads us to the other side of the story: the changing approach of conventional lenders.
In the aftermath of the 2008 global financial crisis, many lenders became much more risk averse when it came to credit applications.
For first-time buyers through to seasoned property investors, the process of applying for mortgages became more time-consuming and complicated.
This more risk-averse approach has manifested itself in new practices, in which many lenders now prefer to rely on a rigid tick box methodology to mortgage approvals.
The introduction of new policy measures has catered to the rise of a more stringently regulated mortgage industry.
Regulatory policies such as Mortgage Market Review and Mortgage Credit Directive are extremely important; they help ensure lenders are suitably diligent when it comes to approving mortgage applications.
Nonetheless, the risk-averse approach adopted by mortgage providers has brought with it a host of new challenges for HNWs, which can undermine their ability to access property opportunities.
As a result, many of the more conventional lenders are simply not well placed at present to cater to the mortgage needs of wealthy individuals.