As with all property purchases, arming oneself with the right knowledge and partnering with the right experts will go a long way towards ensuring a smooth transaction. However, it is worth being aware that what might be considered relatively small issues for prospective buyers can be magnified by the property’s value when buying a luxury home, therefore careful consideration and preparation is essential to avoid mistakes that could have costly repercussions.
One size does not fit all
Fundamentally, both buyers and mortgage brokers must appreciate that luxury properties require bespoke services and solutions. After all, the epitome of a luxurious home is one that benefits from opulent amenities and features that go beyond the ordinary – this means that high-end real estate will often present unique challenges for solicitors, valuers, surveyors and, not least, lenders.
Let us start with the valuation. In determining a luxury property’s market value, a range of factors will need to be considered, such as the location, size, property type, condition, local amenities as well as planning consents and any recent improvements undertaken.
Valuing a property is, to an extent, a matter of comparable features – properties of a similar size, type and condition in the same area and what they have been sold for recently. This provides use benchmarks to guide the valuer.
As such, the twinned science and artistry of property valuations tends to be more consistent for properties in the lower and median price bands; there is simply a wealth of data on completed sales to be drawn upon while making an assessment. When it comes to high-end property, conducting an analysis based on a rate per square foot basis is not always accurate, as there may be a “ceiling” for house prices in certain locations or more specific features that are particularly desirable when it comes to luxury homes.
The unique and bespoke nature of specifications across luxury homes means there is limited scope for comparison, and valuations, which are often reliant on comparable sale prices, may vary significantly depending on the individual assessing the property. Consequently, luxury (and by extension prime) property valuations are more challenging.
Similarly, a lack of comparable metrics also poses potential headaches in the conveyancing and surveying process, which can unearth a number of unexpected issues due to the more complex design, build and, often, scale of the properties in question.
As such, it is vital for prospective buyers and their advisors to ensure they work with expert agents, valuers and lenders who understand the challenges presented by luxury properties. Not only can this ensure the correct price is paid and that finance (such as a prime mortgage) can be secured as necessary, but more generally it ought to assist in making the purchasing process as smooth as possible.
HNWI mortgages can be complicated
It is a common assumption that high net-worth individuals (HNWIs) do not have to contend with the stresses surrounding mortgage applications. However, the complexity of high net-worth lending is not to be underestimated. Their ability to access and arrange financing is by no means guaranteed.
In reality, the often complex and diverse nature of a HNWI’s wealth – their income, investments and liquidity – means they run a surprisingly high risk of being turned away by conventional lenders. It is often the case that the wealthier an individual is, the more complicated their income structure and finances are likely to be, as HNWIs tend to have their capital locked up in illiquid assets, spread across multiple jurisdictions. As a result, the process of applying and being approved for a mortgage can be far more complex for these individuals, as the standard ‘tick-box’ methodology applied by many high street lenders can pose unexpected complications.
The pandemic has also heightened the challenges of applying for a mortgage, with many mainstream providers and big banks reticent to take on more complex cases. In today’s stringently regulated mortgage landscape, a risk-averse approach prevails, bringing a host of added complexities for wealthy individuals to access high-end properties.
As with all stages of the home buying process, seeking out expert guidance and working with specialist brokers and lenders will also be key to ensuring their bespoke needs are skillfully handled.
Getting the whole picture
When choosing a luxury home, particularly in the case of first-time luxury property buyers, it is important to have a clear understanding of one’s homebuying goals. This goes beyond the desired features of the property – additional, thorough due diligence is crucial.
Take planning permission as an example. Those who opt for purchasing a listed building may find that the beautiful aesthetics come with severe limitations in terms of the potential for renovations or extensions. Caution, then, is incumbent on the prospective buyer, who must determine beforehand if the weight of existing planning restrictions may be detrimental to their longer-term vision of the property.
Taxation is another example. If the luxury property being purchased is a second home, or the buyer is not a UK resident, then additional stamp duty fees will need to be paid.
Having all the facts beforehand is key to ensure unexpected obstacles do not materialise further down the line, which could impact the property purchase or the eventual resale value.
As confidence builds in London’s prime property market and the capital continues to forge its post-pandemic recovery, this could translate into a rise in demand for luxury real estate from wealthy investors in the year ahead. For prospective buyers or investors, doing one’s homework ahead of time and working with expert agents and specialist lenders that have a solid track record of experience and in-depth knowledge of the high-end market could prove invaluable in the successful completion of luxury property transactions.
