02 / 10 / 2023
What you earn can have a big impact on the kind of property you can afford to buy.
Most mortgage lenders limit borrowing to 4.5 times household income, so getting a £1m home would usually require a hefty salary, or an even heftier property deposit. But this isn’t always the case.
High street lenders regularly review their affordability criteria to ensure it reflects the economic conditions of the time. If inflation is high – as it is currently – it can call borrowers’ ability to meet their repayments into question.
Currently, housing affordability is low, as house prices remain far above average incomes. The cost of a typical UK home is now 6.7 times average earnings, according to Halifax’s latest house price index, but this varies around the UK.
But what if you didn’t need to meet lenders’ affordability criteria in order to buy a house? Welcome to the world of private banks, where you can borrow money to buy a property even if you don’t have any income at all – but might need £3m in savings instead.
What are the advantages of a private bank over a high street lender?
There are two main draws of using a private bank; service and flexibility.
On the service side, private banks try to build a long term relationship, explains Ashley Thomas of Magni Finance, and can offer a bespoke service across all areas of financing and wealth management.
For example, new customers joining C.Hoare & Co are always met by a partner of the bank, all nine of whom are Hoare family members. And, due to the joint-liability nature of the bank’s ownership, every mortgage over a certain amount has to be personally signed off by one of the partners.
“As you would expect, discretion is paramount,” he added.
However, it is the flexibility and willingness to look at a customer’s finances in the round that makes private bank loans attractive to high net worth individuals – classed as being those with assets of at least £3m.
While high street lenders can usually only loan up to 4.5 times the income of an applicant, high net worth individuals are not tested in the same way. It means private banks are able to consider other assets, such as stocks and shares investment portfolios and overseas finances, when approving a loan.
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