Despite applying as high earners, a new study by Investec shows that high net worth individuals find obtaining a mortgage difficult. 

Ninety per cent of HNW individuals have faced mortgage rejections and had to accept lower loan-to-value (LTV) ratios than they wanted because lenders were not able to understand the complexity of their incomes, according to latest research from Investec.

The study with corporate executives, finance professionals and entrepreneurs with average earnings of more than £510,000 ($646,000) found that 84 per cent of the respondents have had to accept a lower LTV or provide a larger deposit to secure a mortgage in the past five years.

The most common reason for this was their non-standard income – such as receiving a large part of their pay in bonuses or another form of discretionary income or being paid in foreign currency – which prevented them from accessing higher LTVs. On average, they had to accept LTV reductions of 20 per cent, the research shows.

Such finding suggest that just because a person has a large amount of wealth does not necessarily mean they don't struggle for credit, particularly if assets are complex, illiqiuid or tied up in various ways. A number of specialists work in HNW mortgage lending in the UK, a topic explored here.

The Investec report said that on a £1 million property, the difference between being able to access a 60 per cent LTV versus an 80 per cent LTV would mean having to find an additional £200,000. 

Investec commissioned research agency Pure Profile to interview 100 HNW individuals including senior executives working in the City, living in London and the Southeast earning at least £300,000 a year, and business and property entrepreneurs owning a profitable business with a turnover of at least £2 million. It was conducted in October last year.

The research shows that more than half of HNW individuals who have had to accept a lower LTV said they cut it by up to 20 per cent while a third said the LTV had been reduced by between 20 and 30 per cent. Nearly two out of three questioned said they have been put off buying a home because of difficulties securing credit against their income or assets, while 56 per cent have been deterred from buying an investment property, the research reveals. 

Despite the challenges, around a quarter of those questioned said they had secured a mortgage with a specialist bank such as Investec which was able to consider different income structures, while 36 per cent said they secured deals with mainstream banks. The remaining 40 per cent said they had used both.

The most common reason for rejection was the size of the LTV requested. Around 37 per cent identified that as the reason while 33 per cent said they were turned down because of the type of property they wanted to borrow against. Nearly a third said one of the reasons for rejection was because they were paid in a foreign currency. More than a quarter said they were told they had limited credit history in the UK while 20 per cent said the nature of their employment such as being a partner in their firm was a reason for rejection, the firm continued.

“Both high-earning professionals and successful entrepreneurs will often struggle to secure the mortgages they want from conventional mainstream lenders due to the complexity of their incomes,” Siobhan Sames, private banking team lead at Investec, said. 

“High-earning professionals, for instance, are more likely to receive discretionary income (i.e. bonuses, profit distribution or carried interest) which may not be recognised as earnings by some lenders while entrepreneurs may face issues over proving their income despite running profitable businesses. There are however a growing number of specialist banks which can offer personalised lending based on a deeper understanding of an individual’s circumstances,” she added.

Investec offers a range of private bank accounts for clients earning at least £300,000 a year and with a minimum net worth of £3 million. Investec said its ability to understand complex client profiles means it can often tailor a mortgage quickly.

Investec Bank is the UK banking subsidiary of Investec, the international financial services group. It partners with private, institutional and corporate clients, offering banking and investment services in the UK, Europe and certain other countries. It also offers wealth management services through its partnership with Rathbones Group, a UK wealth manager.