UK's Banking Industry Frets Over Rule Impact On High Net Worth Mortgage Borrowers

Tom Burroughes

23 September 2014

The UK luxury housing market has boomed in recent years as wealthy buyers have swooped but proposed rules on loans could hit high net worth borrowers and the banks that serve them, the ," he said.

Typically, he said, HNW individuals have a range of assets that a bank considers before making a loan, rather than simply looking at income, which is only one indicator. The ability of some of the smaller banks to operate will be made more difficult, he added.

In recent years, organisations in the private client industry have told WealthBriefing that HNW and ultra HNW borrowers sometimes struggle to persuade banks to provide loans due to a “box-ticking” approach brought about the impact of tougher capital rules. Last year, for example, Cordea Savills, the UK-based international property investment manager, held a final closing of its Prime London Residential Development Fund. This fund was created at a time when conventional bank lending had become difficult to obtain.

The BBA’s Smith went on to state that the PRA has recognised “the need for some proportionality in their proposals”; this means that under its plans, some 15 per cent of a bank’s lending could exceed the 4.5 times LTI ratio and firms with a low volume of total lending would also be excluded.

But Smith warned that private banks, however, will be “unfairly penalised” because significantly more of their customers typically want to borrow in excess of the proposed 4.5 LTI ratio and the value of the loans they provide are typically much higher than the average.

The Bank of England has stated that its consultation paper on the issue is “relevant to banks, building societies, friendly societies, industrial and provident societies, credit unions, PRA-designated investment firms, and overseas banks in relation to their UK branch activities. The proposed rules also require these firms to apply the rules at UK subsidiary level in relation to firms not already caught by the rules”.

The consultation process ended on 31 August.