When the last Mortgage Market Review paper was published in December, I was pretty vocal about our feelings regarding the proposals in relation to high net worth borrowers.
We have now submitted our formal response to the regulator. While initially satisfied that the Financial Services Authority recognises high net worth borrowers as a distinct sector we felt some of its definitions were off the mark.
The first of these is classifying a high net worth borrower as someone earning more than £1m per year. The way salaries are structured with bonuses, dividends, benefits and stock options means few individuals actually take home a seven-figure pay packet.
We suggested £500,000 as a starting point. Or the FSA should clarify what it defines as income.
Another potential sticking point is whether main residences are included when considering assets. House price growth over the past 20 years has meant more people are living in £1m-plus homes but who would not regard themselves as high net worth.
They should not be classified as such simply because they live in an area that has seen huge price rises.
A final issue we are keen to see discussed is affordability flexibility. Many older high net worth borrowers have limited income, but large overall wealth, so banks sometimes require a number of years’ mortgage payments upfront.
Money in the bank is far greater security than potential earnings. It would be nice to see this attitude to affordability adopted.