Since the 2008 US mortgage crisis, which led to a worldwide economic downturn, many traditional high street banks have taken a step back from bespoke financing. The perceived added risk together with the regulatory restrictions did initially leave something of a void in the lending markets. However, while private banks have been around for many years they have stepped forward to fill this void and offer a range of bespoke financing.
Why is bespoke financing so important?
Many people often get the wrong impression of the UK bespoke financing market especially when they learn that 70% of the traditional mortgage market is covered by the “big six”. Bespoke financing is very different to traditional/vanilla mortgages which are relatively straightforward. Whether acquiring a property, redeveloping or using assets to raise funds for other investments, bespoke financing effectively means that the structure of the finance is built around the client’s specific situation. It is not a case of squeezing the client into a standard structure but creating a unique bespoke arrangement.
Assets and cash flow
Traditional mortgage lenders tend to focus more on income/cash flow as opposed to assets. In many cases, using the standard affordability calculation, it can be difficult for those with limited cash flow but significant assets to secure funding. Private banks, as well as niche lenders, do not operate under the same restrictions as high street banks and they can therefore take a different view. This means that they can take into account current assets and current cash flow, together with future prospects in some situations, to calculate funding levels.
In many ways this helps to avoid the fire sale of assets for clients who have the opportunity to invest in potentially lucrative projects but have limited liquidity. This also allows clients to utilise their assets to the full offering a higher degree of security for lenders in exchange for funding levels which traditional mortgage companies would not be able to accommodate.
You will also find that many private banks offer extremely competitive mortgage rates in exchange for the transferral of investments to their asset management division. In many ways this acts as a type of insurance policy against future funding although clients will still have access to income streams from their investment portfolio. There have been many occasions where the income from an investment portfolio contributes significantly (or in some cases wholly) to mortgage interest charges.
So, private banks will have additional assets under management, management fees and a growing relationship with a new client. The client receives a competitive mortgage rate and access to an array of additional services which many high net worth individuals will require going forward.
For many years private banks have been something of a mystery to investors but they have stepped forward to fill potentially lucrative voids left by traditional banks in retreat since 2008. Many will still specialise in high net worth individuals but the services they offer and the potential terms and conditions are now more public knowledge than ever before. Approaching the right mortgage broker should encourage competition for your funding requirements and lead to very competitive rates and a bespoke structure which perfectly dovetails with your particular financial situation. A win-win for all parties?