The Financial Services Authority recognised this for the first time in its December Mortgage Market Review paper.
It describes such borrowers as earning a gross income of no less than £1m a year or having net assets worth no less than £3m. They are likely to be financially capable and be able to repay capital, for example, through realising their assets, whether the mortgaged property itself or other assets.
In the paper, the FSA sets out two options for dealing with such borrowers. The first is to allow them to opt out of the advice process but all other aspects of the regulation will continue to apply. The second is to take them out of the equation altogether so regulation will not cover them.
So how do high net worth borrowers transact a mortgage? They usually use a private bank and often negotiate a bespoke deal with the lender.
Short-term loans linked to the borrower’s broader assets or investments are also typical. Rarely would they take out an off-the-shelf product. This makes borrowing by high net worth clients different to that of average borrowers getting an 80% LTV fixed rate, for example.
We believe the MMR rules for responsible lending and advice were not designed for this situation. This implies the FSA’s second option is the appropriate one – such borrowing should be taken out of the MMR.