Vast majority of High Net Worth Individuals suffer mortgage rejections

The vast majority of high net worth individuals have faced mortgage rejections and had to accept lower loan-to-value ratios than they wanted because lenders were not able to understand their complex remuneration, new research from Investec shows.

Its study with corporate executives, finance professionals and entrepreneurs with average earnings of more than £510,000 found 90 per cent have been rejected for mortgages, despite applying as high earners/HNWIs.

More than four out of five said they have had to accept a lower LTV or provide a bigger deposit to secure a mortgage in the past five years.

The most common reason for this was their non-standard income – such as receiving a large part of their pay in bonuses or another form of discretionary income or being paid in foreign currency – which prevented them from accessing higher LTVs.

On average they had to accept LTV reductions of 20 percentage points. On a £1m property, the difference between being able to access a 60 per cent LTV versus an 80 per cent LTV would mean having to find an additional £200,000.

More than half of HNWIs who have had to accept a lower LTV said they cut it by up to 20pp while a third said the LTV had been reduced by between 20 and 30pp. For a tenth the reduction was between 30 and 50pp.

Nearly two out of three questioned say they have been put off buying a home because of difficulties securing credit against their income or assets, while a little more than half have been deterred from buying an investment property.

Some 24 per cent of those questioned said they had secured a mortgage with a specialist bank such as Investec which was able to consider different income structures, while 36 per cent said they secured deals with mainstream banks. The remaining 40 per cent said they had used both.

The most common reason for rejection was the size of the LTV requested. Around a third identified that as the reason while another third said they were turned down because of the type of property they wanted to borrow against.

Some 31 per cent said one of the reasons for rejection was because they were paid in a foreign currency. More than a quarter said they were told they had limited credit history in the UK while a fifth said the nature of their employment such as being a partner in their firm was a reason for rejection.

An Investec spokesperson says: “Both high-earning professionals and successful entrepreneurs will often struggle to secure the mortgages they want from conventional mainstream lenders due to the complexity of their incomes.

“High-earning professionals, for instance, are more likely to receive discretionary income (i.e. bonuses, profit distribution or carried interest) which may not be recognised as earnings by some lenders while entrepreneurs may face issues over proving their income despite running profitable businesses.

“It can be hugely frustrating for these HNWIs to be rejected for mortgages or unable to secure the deals they’re looking for. There are however a growing number of specialist banks which can offer personalised lending based on a deeper understanding of an individual’s circumstances.”