The reason for this has to do with the delays it can take for a mortgage to be approved, not to mention the general uncertainty surrounding the potential success of an application.
The inherent competitiveness of the UK property market means buyers are best positioned to complete on a transaction if they can act quickly and confidently. This explains why the mortgage application process is so important – if not managed properly, it could lead to a buyer not being able to complete on a sale.
Mainstream lenders and high street banks have become notably risk-averse in recent years. The aftermath of the global financial crisis compelled banks to adopt stringent due diligence procedures. While this was of course warranted, it has also meant that many mortgage providers are not equipped to meet nuanced cases or the needs of applicants with complex income structures.
There is a saying that the wealthier an individual, the more complicated their finances typically are. Based on my experiences working in the prime property mortgage sector, I can confirm that this saying certainly rings true.
Typically, we find that their wealth can be spread across multiple jurisdictions and locked up in assets that offer little in the way of liquidity. As a consequence, they find themselves at odds with the rigid application processes employed by high street banks when seeking new financial products and services.
To uncover the extent of this issue, Butterfield Mortgages Limited (BML) commissioned a survey of high-net-worth individuals (HNWIs) in January 2021. The objective of the survey was to reveal how many HNWIs have been denied a mortgage in the last decade and the reasons why this had been the case.
Wealthiest are being denied mortgages
According to BML’s research, 18% of HNWIs have been turned down for a mortgage in the past 10 years. What’s more, over half (51%) of those who have either successfully or unsuccessfully applied for mortgages in the decade told us that they have been rejected at some point.
When exploring the underlying reasons behind these rejection rates, a majority (78%) of the respondents said their banks rely too heavily on “tick box” methods when reviewing mortgage applications. Over three-fifths (63%) also acknowledged that their complicated income structures had resulted in their mortgage application being rejected.
Overall, the experiences of HNWIs are contributing to a general loss of confidence towards big banks. Just under two thirds (62%) of the respondents told BML they have lost faith in their high street bank’s ability to properly and successfully cater to the needs of BTL landlords and property investors more generally.
Restoring market confidence
This loss in confidence towards mainstream mortgage providers could have significant long-term consequences if not properly addressed. Based on the latest house price indices, it is evident that demand for property investment opportunities has not waned. House prices rose on average by over 5% in 2020, and this is a direct result of buyer demand for bricks and mortar. However, this impressive rate of house price growth will run out of steam if buyers are not able to access the finance needed to purchase property.
This is already partly on display in the prime central London (PCL) property market. According to Knight Frank, PCL house prices declined for the third consecutive month in January. While there are a multitude of factors influencing this decline, the BML research suggests access to mortgages is a clear concern.
Over the coming months, the hope is that the UK will be able to successfully transition out of lockdown and recovery from the initial disruption caused by the pandemic. Part of this post-pandemic recovery will need to include the promotion of investment activity, particularly in the property sector.
That’s why it is vital all types of buyers, including HNWIs, are able to access the necessary finance to confidently complete on a sale.
