Private Bank Mortgage
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Private Bank Mortgage
Scott West talks about private bank mortgages.
What is a private bank mortgage?
It’s the private banking side of the mortgage world. Most people will have heard of Natwest, Santander, The Mortgage Works, Landbay… there’s a host of providers we consider to be high street lenders. There are also specialist Buy to Let lenders.
When you get outside of that it tends to be because you’ve got very large loans or very high personal wealth. In these cases you’re probably looking for more bespoke borrowing – and that’s where the private banking world comes into its own.
Private banks can take a pragmatic view on your other portfolios or investments or business plans. If you’re trying to grow a large portfolio, they will work with you to finance and facilitate the growth. That’s the real benefit of the private banking arena.
What is the difference then between a private mortgage and a standard mortgage?
A term that’s most commonly used in the property world is ‘dry lending’. If you go to your high street lender they will give you a loan to buy a property, secured on the home. It’s a straightforward transaction. That’s what they call a dry lend, where nothing else is involved.
A lot of private banks won’t do dry lending. They want more skin in the game. They want more of an investment or to build a broader relationship with you as a client. So if you have investments, pensions or assets globally, or if you own a business with high turnover, all those things become part of the transaction.
That’s very useful because it allows you to take a wider view of your wealth and derisks the transaction. It allows you to get better rates, better products and better solutions.
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What criteria do I need to meet and how much can I borrow?
You can borrow as much as you like. With the way they structure the loans, if you have other things in the background – assets under management with them including investments or cash – you could have a 100% Loan to Value.
By using the rest of your wealth it becomes a much easier and more comfortable transaction for you. In terms of the criteria, minimum loan sizes tend to be £2 million or £3 million and most lenders will get excited when it gets to £10 million. You do need to be fairly wealthy to be considered by these lenders.
How much interest do private lenders charge?
That’s very dependent on the loan and the gearing – which is how much you’re borrowing versus the rest of the bank’s interest in you as a client. If you have a 50-50 split, where perhaps you’re borrowing £5 million but you have £5 million worth of investments with the bank, you might be looking at a very fairly low margin.
Currently, (podcast recorded in March 2023) I’m working on a couple of cases with a large bank at 1.8% over base rate which sounds relatively high. About a year ago those yields were around 1.2% over base. Yields are currently a bit higher, but the flexibility to have those floating rates over base is a great benefit.
Is a private mortgage a good idea?
They are a good idea usually because you end up with a much better solution as a client. There are some disadvantages. The bank will want a wide reaching relationship with you in most instances, so if you have a large portfolio of properties they will probably want to take a good chunk of that portfolio, if not all of it, but they will give you very good rates for that.
A lot of clients don’t like having all their eggs in one basket, so you need to weigh up the costs and your own personal attitude to risk. Personally, I wouldn’t have an issue putting most of my properties with one lender, but I can understand why some people do. It’s not necessarily a negative, but some people might consider it to be one.
In terms of the positives, you will have a private banking manager. You can call them with a day’s notice to change your loan or borrow more money. It’s just a much better way of dealing with a mortgage.
How can a broker like Propertyze help with a private bank mortgage?
Private banking work is notoriously hard to get into. You will need somebody to introduce you to the bank and package your deal for you. It’s another example of how a broker and their relationships are vital.
If you were to turn up and ask to borrow money they wouldn’t even entertain a conversation with you. It really comes down to a broker presenting your case and your overall wealth to the bank as a good idea, and then working with them to achieve the lending required.
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