When the hugely popular TV quiz show, ‘Who Wants to Be a Millionaire?’, was first broadcast in December 1998, less than 1.7% of the UK population were actually millionaires.
At last count, almost 5% – more than 2.5 million adults – belonged to this golden category, according to the Credit Suisse Global Wealth Report (June 2021).
The number of “high net worth” (HNW) people is harder to pin down as there is no official benchmark in this country, but some estimates put the figure at around four million people.
Lenders need to offer HNW a more personalized and tailored service
The rise in the number of such wealthy people has been helped in large part by the well-documented stratospheric trajectory of land values over the past decade, assets that are included in the Global Wealth Report figures.
To be sure, some of this house price growth has been spurred by people reassessing their housing needs during the pandemic and taking advantage of historically low interest rates, spurred by the suspension of stamp duties. However, even if property values remain stable over the next few years, it could still mean that a large number of wealthy homeowners – and even more homeowners – will need advice on their loans.
Big banks’ tick box approach may, in fact, tick the wrong boxes
According to Savills, as of February this year, 689,189 residential properties in the UK were worth over £1million, up 22% or 125,928 since the end of 2020. And, when it comes to buying for rent, many landlords have expanded their property portfolios beyond the £1million mark and well beyond, either by buying more properties or due to the significant property price inflation that we have seen in recent years, or a combination of both.
This is all great news for homeowners, landlords and our industry at large, especially when faced with the seemingly endless drip of economic uncertainty and disaster created by the pandemic and… other ongoing world events. But this comes with challenges for advisors and lenders.
Lenders can improve their offering through reviews with advisors and their clients
Millionaires may not be the unicorns they once were, but they are hardly ten to a penny, and HNW individuals are just that – individuals. They may be considered privileged but they are not necessarily advantaged in order to organize their loans and structure their portfolios in the most efficient way.
Ironically, sometimes the more money you have or the larger your property portfolio, the more difficult it can be to access the best advice and the most appropriate financing for your needs.
Traditional lenders may lack the expertise to meet the nuanced requirements of high net worth individuals, whose income streams can be complex and varied. The big banks’ tick-box approach may, in fact, tick the wrong boxes.
We should pull a leaf from the book of mortgage advisers when it comes to borrowers with larger, more complex cases
Moreover, the private banks that offer to meet the borrowing needs of high net worth individuals may not be experts in real estate finance, focusing as they do on the broader definition of wealth. Indeed, a major concern and frustration for mortgage advisers could be the tendency of private banks to strengthen their existing relationship with their client.
Naturally, HNW clients are the target market for private banks, which seek to manage as much of their assets as possible, from real estate to equities to pensions. But, when they undertake to move the mortgage advisor, they risk doing a disservice to both that advisor and their client.
That’s why I think a better solution for high net worth borrowers, whether portfolio owners or homeowners, is a collaboration between themselves, their trusted mortgage advisor and a specialist lender with a lot of experience. and expertise in the market.
High net worth individuals are not necessarily advantaged when it comes to arranging their loans
Lenders need to offer HNW a more personalized and tailored service. In fact, we should pull a leaf from the book of mortgage advisers when it comes to borrowers with larger, more complex cases.
Just as advisors hold regular conversations with their portfolio owners and high net worth clients, lenders can improve their offering through conversations with advisors and their clients, and tap into our risk and relationship management teams, the optionally.
Then, all parties can work together to plan and find the most appropriate long-term solutions for the borrower, without ever looking to replace the primary advisor/client relationship.
Simon Cockerill is Head of Intermediate Sales Development, Groupe OSB
This article appeared in the May issue of MS.
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