Definition of "high net worth individual" in mortgage terms

alexanderalexander

I understand that if a mortgage applicant is categorised as a "high net worth individual" (HNWI), the criteria which lenders are permitted to apply can be massively more flexible, and this flexibility can be very useful to applicants who might have substantial net assets but very little income, for example.

I am, however, having trouble finding out what the relevant definition of HNWI is! There appear to be two which are referred to in the mortgage context:

• The FCA Mortgage Conduct of Business Rules defines HNWI as having an annual net income of no less than £300,000 or net assets of no less than £3,000,000 (which can include the person's primary residence and, presumably, pension pots?)
• The Consumer Credit Act 1974 defines it at an annual net income of no less than £150,000 or net assets of no less than £500,000 (but this excludes the person's primary residence and pension pots).

I've seen both referred to on blog posts etc. on this subject. Does anyone know how the two definitions interact? Clearly a lot more people will be included in the CCA definition that the Mortgage Conduct of Business Rules definition.

ACG

You should probably check lenders criteria:

Below is Santanders, I have struggled to find the criteria with Natwest, Halifax and Barclays but some smaller lenders seem to have the same definition.

We will accept applications on an Execution Only basis for High Net Worth customers and Mortgage Professionals.

For an application to be considered on an Execution Only basis the applicants must meet the following criteria:

High Net Worth: one applicant must have an annual net income of no less than £300,000, or net assets of no less than £3,000,000. Joint incomes cannot be summed to meet the eligibility amounts.

amnblog

It’s the FCA Rules £300K/£3m

It applies to being able to do execution only business.

It is not about making allowances on criteria.

theoretica

Half a million in 1974 would be over 5 million today just through inflation - I doubt anyone would keep the figures unchanged.

alexanderalexander

Thank you both for your replies.

amnblog wrote: »

It’s the FCA Rules £300K/£3m

That's what I was thinking from the sources, but do you have any insight into this case study here where HNW status appears to have been judged by reference to the Consumer Credit Act? https://www.largemortgageloans.com/our-case-studies/what-is-the-high-net-worth-individual-exemption/

amnblog wrote: »

It applies to being able to do execution only business.

It is not about making allowances on criteria.

I have to admit I am very confused by this. Almost all of the case studies I have read on brokers' websites on HNW mortgage have suggested that the main benefit of an HNW categorisation is so that, for example, someone who has very little income (perhaps because they have structured their affairs that way so as to maximise capital gains etc.) but a high net worth would still be allowed to get a substantial mortgage. Is this not the case?

Thrugelmir

What's your personal objective? Then we'd have a better understanding of your angle. Fishing for something which precisely matches your personal circumstances is somewhat unlikely.

ACG

alexanderalexander wrote: »

I have to admit I am very confused by this. Almost all of the case studies I have read on brokers' websites on HNW mortgage have suggested that the main benefit of an HNW categorisation is so that, for example, someone who has very little income (perhaps because they have structured their affairs that way so as to maximise capital gains etc.) but a high net worth would still be allowed to get a substantial mortgage. Is this not the case?

Regardless of your assets, you need an income that supports the mortgage. Having £10m in property and an income of £20k, is not going to get you a £500k mortgage.

We can all do something a little out of the box and maybe get you 6x income for instance (where as the market typically goes up to 5x) but you are not going to get 10x income purely because you are asset rich.

alexanderalexander

theoretica wrote: »

Half a million in 1974 would be over 5 million today just through inflation - I doubt anyone would keep the figures unchanged.

I expect that it would've been lower in 1974 but it's been amended to £500k by subsequent legislation (the year of the original act doesn't change even when it's been much amended).

Thrugelmir wrote: »

What's your personal objective? Then we'd have a better understanding of your angle. Fishing for something which precisely matches your personal circumstances is somewhat unlikely.

Good question! I don't actually have any immediate personal objectives. However, in two or three years' time I will want to move house, and I will have the "problem" that my formal income which could be used as a traditional income multiple will be comparatively small, but I will have substantial assets (which I would much rather keep invested where they are rather than realise them to create a monster deposit). I would comfortably meet the CCA definition of HNW but I would not meet the FCA definition (although I may meet the FCA definition at some point further in the future, so I am still interested in that).

ACG wrote: »

Regardless of your assets, you need an income that supports the mortgage. Having £10m in property and an income of £20k, is not going to get you a £500k mortgage.

We can all do something a little out of the box and maybe get you 6x income for instance (where as the market typically goes up to 5x) but you are not going to get 10x income purely because you are asset rich.

I appreciate you are quoting the affordability rules rather than your personal opinion, but in practical terms being asset rich will of course allow you to support a mortgage much bigger than your income would imply. For example, if you have the asset of a substantial director's loan to a wholly-owned company, you can just pull some capital out of the company as a loan repayment whenever you need to make a mortgage repayment. Or you can put a bigger mortgage on a BTL property you own and use the drawdown to pay your residential mortgage. Or you could sell one of your antiques to pay the mortgage. Or all manner of other things!

I do get what you are saying, but the thing which is confusing me is that if you Google "hnwi mortgages" you will find countless specialist brokers and lenders who strongly imply that they can offer big mortgages to people who are asset rich but "income poor". For example, this bank implies it offers a solution for "Individuals ... who may be asset-rich but regular income-poor"
https://www.oaknorth.com/press-releases/oaknorth-launches-mortgages-for-high-net-worth-individuals-sme-business-owners-and-clients-with-atypical-income-streams-with-the-aim-of-building-its-mortgage-loan-book-to-260m-this-year/

And this one strongly implies that if an HNWI has other assets over which security can be taken, the affordability multiple can be thrown out of the window:
https://enness.co.uk/ask-expert/getting-a-mortgage-with-assets/

Can you see why I'm confused?

ACG

They may well be correct, but you are probably going to need a specialist broker in that part of the market or a personal banker.

We specialise in adverse, we have access to products and criteria that other brokers do not. I know there are similar types of agreements with brokers in the new build sector - but as we do not do many new builds, we do not have access to those. I imagine there will be similar agreements in the high net worth area, but if I went to a lender and said can I have 20x income because you have some antiques, I would be making a few wasted phone calls.

I doubt you will be getting mortgages priced as they are for "average" person. You are going to need manual underwriting.

A directors loan repayment is not an income and ultimately at some point, that will stop where as an income theoretically will go on forever and a day.

Thrugelmir

alexanderalexander wrote: »

For example, if you have the asset of a substantial director's loan to a wholly-owned company, you can just pull some capital out of the company as a loan repayment whenever you need to make a mortgage repayment.

That would depend upon on the availability of funds within the Company itself. Withdrawing funds may simply result in an increase of other borrowing facilities.

davidmcn

alexanderalexander wrote: »

That's what I was thinking from the sources, but do you have any insight into this case study here where HNW status appears to have been judged by reference to the Consumer Credit Act? https://www.largemortgageloans.com/our-case-studies/what-is-the-high-net-worth-individual-exemption/

Have you looked at the legislation? The CCA limit was repealed in 2013. So it's likely the case study is about something predating that.