Private Mortgage Lending

Private mortgage lending is not new, but it has become increasingly popular as more people move away from traditional income streams. It is generally, though not exclusively, reserved for high-net-worth individuals (HNWIs).

This article explains private mortgage lending and how to successfully apply for it if you decide this type of finance is right for you.

What is private mortgage lending?

Bespoke lending is often for HNWIs who don’t meet the strict lending requirements of mainstream mortgage lenders, who are governed by tight regulations.

Private mortgages can be used to finance a property purchase if you can afford the mortgage payments but don’t have sufficient documentary evidence to satisfy mainstream lenders’ eligibility criteria.

They can also make house buying possible for people with complex income streams, those looking to buy high-risk properties such as non-standard construction, and flippers.

Private mortgages can be arranged through any individual or company, although they are usually offered through specialist brokers. However, entering into an agreement with a lender who is not a recognised private bank can result in high legal costs and a questionable contract.

Difference between private lending and a mainstream mortgage

Mainstream mortgage lenders have set parameters for each product and strict lending criteria that must be met. Each product they offer must adhere to regulations laid down by the Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA).

Private mortgage lenders are not bound by usual regulations and have much more flexibility. Each case is assessed on its own merits, and the lender needs only to satisfy themselves of the loan’s security and affordability.

This allows them to take a more holistic view of income, expenses and assets when considering an application.

Every aspect of a private mortgage agreement is open to discussion, including:

• Rates
• Terms
• Income multiples
• Complications on deeds

Private lenders can consider any income stream and sometimes allow you to borrow against other assets.

Since private lending is bespoke and arranged on a case-by-case basis, the value of a broker specialising in this type of finance cannot be overstated. The right advisor can negotiate a personalised agreement on your behalf, increasing your chances of landing an attractive interest rate and terms.

Assets under management v dry lending

Many private banks like to form long-term relationships with clients and will ask for assets totalling around 25% of the loan’s value to be transferred to their management.

This is known as the ‘assets under management model’ and may include stocks, shares, cash, or high-value items that act as security against the mortgage. In return, they offer low rates of interest, a high loan-to-value ratio, or bespoke income multipliers.

Dry lending occurs when borrowers lack assets or are able to negotiate favourable terms without using assets as security.

If you have assets valued at more than £1 million or want to borrow more than £500,000, a private mortgage might be your best option.

Approaching a private mortgage lender is best viewed as entering into a negotiation rather than making an application. As such, you should always seek professional advice to ensure you put forward the strongest case and negotiate the best terms.

Are there specific lenders for private mortgages?

Yes. Private mortgages have traditionally been offered only by specialist lenders, not on the high street, and, in many cases, are unheard of outside the industry. Most are small firms that rely on relationships with intermediaries such as brokers rather than inviting direct applications. Some will only lend on a recommendation.

In recent years, mainstream lenders have opened private arms for their businesses to access the private lending market. Although these are attached to high street banks and major lenders, they are separate entities that operate in the same way as traditional private lenders.

While this may seem to make private lending more accessible, for the best possible terms, you should speak to a broker with whole-of-market access.

The advisors we work with have contacts at the private divisions of mainstream banks and fully private lenders who are not usually approachable without the services of an intermediary.

How can a broker help?

Private mortgages are more flexible, but they are also unregulated and have fewer protections. Brokers, however, are regulated, so using a broker to secure a private mortgage adds a layer of protection to your loan. Furthermore, it’s incredibly difficult to find a private lender without a broker, as many of them only work through intermediaries.

Brokers with a good reputation within the industry and long-term relationships with private lenders will give you a head start when negotiating a private mortgage agreement.

They have an insight into how each private lender operates, including those that only take applications through brokers.

They can also act as an advocate on your behalf. In an industry that consciously seeks mutually beneficial deals, that working relationship between broker and lender can be the difference between acceptance and rejection.

We work with brokers who have whole-of-market access and deep working relationships with private mortgage lenders.

They will compare rates and terms across private and mainstream lenders to get you the best deal according to your personal circumstances. Given the right set of conditions, they can negotiate a private mortgage to beat any deal offered by mainstream lenders.

Remortgages and second mortgages

Second mortgages are often harder to get approved for than your initial loan, so the bespoke nature of private mortgage agreements is perfectly suited to this type of borrowing.

Of course, the lender will need to assess your affordability and financial situation, but given the right circumstances and a trusted broker, you should be able to secure a second mortgage if you have the means to repay it.

Private remortgages are relatively straightforward. Private banks like to form long-term associations, and when you remortgage, you should already have a good relationship with them. There may be better deals elsewhere that they can use as leverage to get you an even lower rate with your existing lender.

Get matched with a specialist private mortgage broker

Due to the nature of their lending practice, many private lenders only work through intermediaries and are happy to negotiate with someone they know and trust.

Our broker matching service will put you in touch with an experienced mortgage broker who has whole-of-market access and solid working relationships with private lenders who are sympathetic to your circumstances.

Call today on 0330 822 0505 or enquire online and we’ll match you with your ideal broker for a free, no-obligation chat.