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Why do HNWI’s struggle to secure a mortgage?

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Why do HNWI's struggle to secure a mortgage? 1

By Alpa Bhakta, CEO, Butterfield Mortgages Limited 

Within the mortgage industry it is widely known that high-net worth individuals (HNWIs) often make for complicated clients. This might seem strange to some. After all, one may assume that the super rich would be a very straight forward group to provide mortgages to. However, the reality is quite different, and the challenges within this specialist market have become accentuated over recent years.

Alpa Bhakta

Alpa Bhakta

Since the onset of the global financial crisis in 2008, there has been a broad shift in the mortgage market, with lenders becoming much stricter in assessing applications in an effort to mitigate against the risk of defaults. Generally speaking, it is has been a positive and necessary development. But it has also been a great source of frustration for many HNWIs, who are now particularly susceptible to being turned away by lenders who are unable to process their more complicated financial profiles.

Research commissioned by Butterfield Mortgages Limited (BML) at the start of 2019 showed that one in nine (12%) HNWIs have been turned down for a mortgage in the past decade. This is because the measures high street lenders take to assess an individual’s finances are sufficiently prescriptive as to advantage those with straightforward finances. In other words, applicants who lack a regular income, are often perceived to be high-risk by lenders.

Wealthy individuals typically fall into this category––they rarely have a regular or structured form of income. Indeed at BML, we generally abide by the maxim “the wealthier an individual, the more complicated their finances” because it is common for a HNWI’s portfolio to be split across many different asset classes and jurisdictions.

It might seem strange but individuals who maintain a significant portion of their wealth in the form of both traditional and alternative investments––including assets such as art, classic cars and international real estate––might actually struggle to meet the stringent requirements that high street lenders insist upon.

Furthermore,this broader change in culture has been underpinned by structured regulatory changes. The most significant change in the legislation governing the UK mortgage industry comes in the form of the 2014 Mortgage Market Review, which requires lenders to implement a more rigorous financial stress test to ensure prospective borrowers have sufficient and reliable income to repay any loan.

As a result, HNWIs are at greater risk of being denied a mortgage because they fail to meet the criteria many lenders are following. HNWIs themselves are certainly conscious of the way these changes negatively impact them; 79% think too many banks apply tick-box methods when assessing mortgage applications, failing to adequately account for personal circumstances.

Navigating the property markets

The widespread adoption of this tick-box approach isn’t simply a source of frustration for propespective real estate buyers; property markets cannot run optimally when buyers and investors are unable to access the finance they need to make new acquisitions.

Many HNWIs, particularly those who derive much of their wealth from property investment, have found themselves limited by the changes as lenders have been circumspect with regard to mortgages for non-primary residential property. BML’s aforementioned study showed that 60% of HNWs believe it has become increasingly difficult to secure mortgages for non-primary residential purchases.

In essence, wealthy property investors depend for their dynamism on the ability to borrow against the strength of their existing portfolio. However, according to BML’s survey, 44% of HNWIs claim that their difficulty in securing a mortgage stems from the fact their capital is tied up in existing real estate investments, with two thirds (67%) feeling high street banks adequately cater to the needs of buy-to-let investors generally.

What can you do?

Property Investors and HNWIs need to understand that their finances do not conform to the expectations of most UK mortgage providers. As such, they represent specialist borrowers who, consequently, require specialist lenders.

For those lenders who are not well-versed in the intricacies that mark out HNWIs, a lack of a regular income will seem like a red flag rather than a reflection of the individual’s true wealth. Therefore, HNWIs looking to secure a mortgage are typically better served by seeking out a financial provider who will take a more holistic approach to assessing their finances; a task that requires skill, experience and time.

Ultimately, the shift towards a more risk-averse lending industry will help instill stability and trust into the UK mortgage market in the long-term.However, in the short-term, HNWIs must identify the mortgage providers who are well-placed to adapt their services to their particular needs, and in doing so offer the support required so he or she can proceed with a property purchase.

Finance

Sunak warns of bill to be paid to tackle Britain’s ‘exposed’ finances – FT

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Sunak warns of bill to be paid to tackle Britain's 'exposed' finances - FT 2

(Reuters) – British finance minister Rishi Sunak will use the budget next week to level with the public over the “enormous strains” in the country’s finances, warning that a bill will have to be paid after further coronavirus support, according to an interview with the Financial Times.

Sunak told the newspaper there was an immediate need to spend more to protect jobs as the UK emerged from COVID-19, but warned that Britain’s finances were now “exposed.”

UK exposure to a rise of one percentage point across all interest rates was 25 billion pounds ($34.83 billion) a year to the government’s cost of servicing its debt, Sunak told FT.

“That (is) why I talk about leveling with people about the public finances (challenges) and our plans to address them,” he said.

The government has already spent more than 280 billion pounds in coronavirus relief and tax cuts this year, and his March 3 budget will likely include a new round of spending to prop up the economy during what he hopes will be the last phase of lockdown.

He is also expected to announce a new mortgage scheme targeted at people with small deposits, the UK’s Treasury announced late on Friday.

Additionally, the government will also announce a new 100 million pound task force to crack-down on COVID-19 fraudsters exploiting government support schemes, it said.

(Reporting by Bhargav Acharya in Bengaluru; Editing by Leslie Adler and Cynthia Osterman)

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G20 promises no let-up in stimulus, sees tax deal by summer

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G20 promises no let-up in stimulus, sees tax deal by summer 3

By Gavin Jones and Jan Strupczewski

ROME/BRUSSELS (Reuters) – The world’s financial leaders agreed on Friday to maintain expansionary policies to help economies survive the effects of COVID-19, and committed to a more multilateral approach to the twin coronavirus and economic crises.

The Italian presidency of the G20 group of the world’s top economies said the gathering of finance chiefs had pledged to work more closely to accelerate a still fragile and uneven recovery.

“We agreed that any premature withdrawal of fiscal and monetary support should be avoided,” Daniele Franco, Italy’s finance minister, told a news conference after the videolinked meeting held by the G20 finance ministers and central bankers.

The United States is readying $1.9 trillion in fiscal stimulus and the European Union has already put together more than 3 trillion euros ($3.63 trillion) to keep its economies through lockdowns.

But despite the large sums, problems with the global rollout of vaccines and the emergence of new coronavirus variants mean the future path of the recovery remains uncertain.

The G20 is “committed to scaling up international coordination to tackle current global challenges by adopting a stronger multilateral approach and focusing on a set of core priorities,” the Italian presidency said in a statement.

The meeting was the first since Joe Biden – who pledged to rebuild U.S. cooperation in international bodies – U.S. president, and significant progress appeared to have been made on the thorny issue of taxation of multinational companies, particularly web giants like Google, Amazon and Facebook.

U.S. Treasury Secretary Janet Yellen told the G20 Washington had dropped the Trump administration’s proposal to let some companies opt out of new global digital tax rules, raising hopes for an agreement by summer.

“GIANT STEP FORWARD”

The move was hailed as a major breakthrough by Germany’s Finance Minister Olaf Scholz and his French counterpart Bruno Le Maire.

Scholz said Yellen told the G20 officials that Washington also planned to reform U.S. minimum tax regulations in line with an OECD proposal for a global effective minimum tax.

“This is a giant step forward,” Scholz said.

Italy’s Franco said the new U.S. stance should pave the way to an overarching deal on taxation of multinationals at a G20 meeting of finance chiefs in Venice in July.

The G20 also discussed how to help the world’s poorest countries, whose economies are being disproportionately hit by the crisis.

On this front there was broad support for boosting the capital of the International Monetary Fund to help it provide more loans, but no concrete numbers were proposed.

To give itself more firepower, the Fund proposed last year to increase its war chest by $500 billion in the IMF’s own currency called the Special Drawing Rights (SDR), but the idea was blocked by Trump.

“There was no discussion on specific amounts of SDRs,” Franco said, adding that the issue would be looked at again on the basis of a proposal prepared by the IMF for April.

While the IMF sees the U.S. economy returning to pre-crisis levels at the end of this year, it may take Europe until the middle of 2022 to reach that point.

The recovery is fragile elsewhere too. Factory activity in China grew at the slowest pace in five months in January, and in Japan fourth quarter growth slowed from the previous quarter.

Some countries had expressed hopes the G20 may extend a suspension of debt servicing costs for the poorest countries beyond June, but no decision was taken.

The issue will be discussed at the next meeting, Franco said.

(Additional reporting by Andrea Shalal in Washington Michael Nienaber in Berlin and Crispian Balmer in Rome; editing by John Stonestreet)

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Bank of England’s Haldane says inflation “tiger” is prowling

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Bank of England's Haldane says inflation "tiger" is prowling 4

By Andy Bruce and David Milliken

LONDON (Reuters) – Bank of England Chief Economist Andy Haldane warned on Friday that an inflationary “tiger” had woken up and could prove difficult to tame as the economy recovers from the COVID-19 pandemic, potentially requiring the BoE to take action.

In a clear break from other members of the Monetary Policy Committee (MPC) who are more relaxed about the outlook for consumer prices, Haldane called inflation a “tiger (that) has been stirred by the extraordinary events and policy actions of the past 12 months”.

“People are right to caution about the risks of central banks acting too conservatively by tightening policy prematurely,” Haldane said in a speech published online. “But, for me, the greater risk at present is of central bank complacency allowing the inflationary (big) cat out of the bag.”

Haldane’s comments prompted British government bond prices to fall to their lowest level in almost a year and sterling to rise as he warned that investors may not be adequately positioned for the risk of higher inflation or BoE rates.

“There is a tangible risk inflation proves more difficult to tame, requiring monetary policymakers to act more assertively than is currently priced into financial markets,” Haldane said.

He pointed to the BoE’s latest estimate of slack in Britain’s economy, which was much smaller and likely to be less persistent than after the 2008 financial crisis, leaving less room for the economy to grow before generating price pressures.

Haldane also cited a glut of savings built by businesses and households during the pandemic that could be unleashed in the form of higher spending, as well as the government’s extensive fiscal response to the pandemic and other factors.

Disinflationary forces could return if risks from COVID-19 or other sources proved more persistent than expected, he said.

But in Haldane’s judgement, inflation risked overshooting the BoE’s 2% target for a sustained period – in contrast to its official forecasts published early this month that showed only a very small overshoot in 2022 and early 2023.

Haldane’s comments put him at the most hawkish end among the nine members of the MPC.

Deputy Governor Dave Ramsden on Friday said risks to UK inflation were broadly balanced.

“I see inflation expectations – whatever measure you look at – well anchored,” Ramsden said following a speech given online, echoing comments from fellow deputy governor Ben Broadbent on Wednesday.

(Editing by Larry King and John Stonestreet)

 

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