In this exclusive for IFA Magazine’s Mortgage and Property Investment Magazine, Tippie Malgwi, Head of High-Net-Worth and Diaspora Banking at Afin Bank, explores why traditional, income-based mortgage affordability tests often fail high-net-worth clients, and how a more holistic, asset-led approach can better reflect how today’s wealthy individuals actually build and hold their wealth.
The standard way of assessing a borrower’s affordability for a mortgage is via their income. However, this doesn’t necessarily work for high-net-worth clients who have much of their wealth tied up in assets such as property or investment portfolios. Because of the way their wealth is structured, they might receive an income that falls short of the rigid salary-based affordability criteria that mainstream lenders use.
At Afin Bank we call these people “asset rich, income light” – clients who look good on paper because of their significant wealth, but who fall foul of a mortgage system that is increasingly removing the personal touch of adviser and underwriter and replacing them with an automated approach to support higher volumes of “standard” customers that fit a set of tick boxes.
And we’re not talking about just a handful of super-rich people either. HMRC estimates there were more than 170,000 people earning £300,000 or more annually in 2023, the income level for the FCA’s definition of a high-net-worth customer.
The FCA also defines someone with net assets of £3 million and above as high-net-worth, and while numbers are harder to find for this group of people, ONS data from 2022 estimated that the top 1% of UK households, roughly 282,000 households, had wealth in excess of £3 million.
So there are thousands of potential clients who would benefit from a different way of looking at mortgages for the wealthy, which is what Afin does with our newly revamped HNW Mortgage proposition.
Instead of basing our lending decisions on an applicant’s income, we look at their entire financial position, which for our high-net-worth customers means taking into consideration their entire asset base, including both liquid and illiquid assets.
We will consider assets such as UK and certain overseas investment portfolios, pensions, shares and property portfolios, including residential and commercial property. In certain cases, we will also consider physical assets, such as jewellery, fine art, antiques and classic cars, when supported by an independent valuation.
And of course, we will also consider a mix of both income and assets when assessing mortgage affordability, ensuring utmost flexibility. We can do this because all of our mortgages are individually underwritten, and we take the time to understand a client’s personal circumstances and their true financial situation instead of relying on a computerised model.
That’s because high-net-worth clients vary, and their circumstances can be very different, usually not falling into the stereotype of a wealthy person. These will be hard-working, successful people that many advisers are already supporting with the wealth-management and protection needs, but who may not automatically consider that the same adviser could help them with a new mortgage, a re-mortgage or a capital raise.
Clients such as the company owner who has built up a profitable business but only takes a relatively modest salary because they put much of their profits back into the business or invest it in property. So while their income alone might not be sufficient for a re-mortgage of over a million pounds, for example, Afin could use certain assets within their property investment portfolio to support affordability.
Similarly, consider the young tech entrepreneur who, despite founding a number of successful businesses, still lives with their parents and wants to buy their own flat. Because the salary they pay themselves is relatively low, they do not qualify for a first-time buyer mortgage from a mainstream lender. Afin will consider the value of the combined shareholdings the client has across all their companies to support affordability for the mortgage they need to be able to buy their first home.
This is a pragmatic and commonsense approach to mortgage affordability that we apply to our HNW Mortgage because we have skilled and experienced underwriters. It’s a proposition that could suit a wide range of clients in different circumstances, from retired business owners through to international executives working in the UK on short-term contracts.
In the past, many wealthy clients have been forced to use the private banks that already manage their cash and their assets when looking for a mortgage. But this means the client’s options are limited and there’s little chance of them being able to compare deals.
With Afin, a client will not need to move their assets, so their existing wealth management arrangements remain untouched. This is particularly important for people from overseas living and working in the UK, because their wealth and investments are likely to be based in their home country.
As we are first and foremost a lender, it goes without saying that we offer mortgages for a wide range of funding situations, with loans from £250,000 to £3.5 million, LTVs up to 70%, and a choice of interest-only and repayment options with fixed and variable rates.
Homeownership is widely accepted as a barometer of the UK’s success, and it is an important way for people to grow their wealth. But as the nature of work and how people accumulate their wealth continues to change in the UK, there is a risk that the mortgage industry isn’t keeping up with these changes and ends up stifling those homeownership ambitions.
Afin’s HNW Mortgage, as with all our mortgages, has been designed to meet the needs of real people, ensuring we can support advisers as they help more of their clients get a mortgage.
Tippie Malgwi is Head of High-Net-Worth and Diaspora Banking for Afin Bank
