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Navigating Large Mortgages for High Earners
In this short guide, our chief mortgage adviser, Errol Hall Cert CII (MP & SMP), will discuss large mortgages for high-net-worth individuals, some of the challenges you might face, and how to make the application process smoother.
What You Need to Know
The process can often be unexpectedly challenging for high earners seeking to secure a large mortgage. Despite having substantial incomes, individuals with complex earnings can face hurdles when approaching traditional lenders. Understanding and navigating these challenges can make a significant difference in your mortgage journey.
Why High Earners Face Challenges with Large Mortgages
You might assume that having a high income would make securing a mortgage straightforward. However, many high earners encounter difficulties, particularly if their income is more than just a standard salary. Lenders often struggle to assess complex income structures, such as substantial bonuses, commission-based earnings, restricted stock units (RSUs), or income from multiple international sources.
Lenders typically use strict criteria that do not always reflect the nuances of a high-income individual’s financial situation. For example, they may only consider a percentage of your bonus income or disregard foreign earnings. This can lead to underestimating your borrowing capacity, making it harder to get the mortgage you need.
The Importance of Specialist Advice
Given these challenges, understanding how mortgage assessments work is crucial. Lenders often rely on affordability calculations, stress tests, and risk assessments, which can disproportionately affect those with non-standard income. A significant advantage of working with specialists or mortgage advisers familiar with high-net-worth cases is that we can present your financial situation to align with lender expectations.
Specialist mortgage advisers often have experience dealing with complex cases and can guide you through the process. We know which lenders are more likely to consider total bonus income, unvested stock options, or retained company net profits if you’re a business owner. By doing so, we can improve your chances of securing a favourable mortgage.
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We’ll take care of all the heavy work. From finding the right mortgage product and providing you with a detailed quote, to submitting the mortgage application on your behalf and guiding you right through to the completion of your mortgage.
Understanding Lender Requirements for High Earners
Lenders evaluate income in different ways. For high earners with standard employment contracts, a lender may assess your base salary and overtime. However, the picture becomes more complicated for those whose income includes additional components, such as annual bonuses, investment returns, or overseas earnings.
- Bonuses and Commission: Lenders generally look at an average of your bonus or commission income over a couple of years. However, the way this is calculated varies significantly. Some lenders are willing to consider a higher proportion of these earnings, including signing on bonuses or sporadic commission payments, while others are more conservative.
- RSUs and Equity-Based Income: Many high-income professionals, especially in industries like technology or finance, receive RSUs as part of their compensation. The challenge is that not all lenders view equity-based income as stable and may discount it heavily. Understanding which lenders have a more favourable view of these income sources is critical.
- Dividend Income for Business Owners: Most standard High Street lenders will only accept your company salary and dividend earnings if you are a director with a 25% or more company share. However, a few lenders will evaluate your company salary and your share of your business’s retained profits, a more holistic approach that can work in your favour.
- Foreign and Multi-Currency Income: For those with international earnings, currency fluctuations and different tax regimes can complicate affordability assessments. Some lenders specialise in international cases and have more flexible policies to accommodate global income streams. These lenders usually apply a ‘haircut’ to foreign earnings by shaving off a small percentage of the income to account for currency fluctuations.
The Value of a Tailored Mortgage Application
Applying for a large mortgage as a high earner often requires a bespoke approach. This means presenting a comprehensive financial profile that includes more than just your primary salary. A successful application may involve additional documentation, such as employer letters confirming future bonuses, evidence of projected company profits, or proof of recurring investment income.
Understanding each lender’s policies and preparing your documents accordingly can improve your chances of approval. If you rely heavily on bonuses, submitting salary slips and bank statements showing consistent bonus payments over the years can be beneficial. Similarly, if you receive RSUs, demonstrating their vesting schedule and potential future value may strengthen your case.
Access to Specialist and Private Lenders
High-net-worth individuals often benefit from exploring options beyond traditional high-street banks. Specialist lenders and private banks may offer more favourable terms for large loans, higher loan-to-income ratios, or customised repayment plans. These lenders typically take a more holistic view of your financial situation, considering the long-term stability of your income rather than just immediate figures.
Private banks can be more accommodating if you have significant assets under management. They are also known for offering bespoke mortgage solutions, which can be crucial if you need more flexibility.
Speak To An Expert
We’ll take care of all the heavy work. From finding the right mortgage product and providing you with a detailed quote, to submitting the mortgage application on your behalf and guiding you right through to the completion of your mortgage.
Tips to Increase Borrowing Power
There are several strategies that high earners can use to maximise their borrowing potential. Understanding these can put you in a stronger position when applying for a large mortgage:
- Income Presentation: Make sure all your income components are clearly documented. This may involve gathering detailed evidence of past and current earnings or providing tax returns and ensuring all taxes are paid up to date for any self-employed income to be used.
- Debt Management: Reducing other liabilities, such as outstanding credit card balances or personal loans, can improve your affordability calculations. Some lenders look at your total debt-to-income ratio, so reducing debt before applying for a mortgage can sometimes be a wise move.
- Using Assets to Strengthen Your Case: If you have significant savings, investments, or other assets, these can be used to demonstrate financial stability. Sometimes, lenders may offer more favourable terms if you use assets as collateral or even agree to invest with their institution.
- Long-Term Planning: If you are not immediately ready to apply for a mortgage, working with a financial adviser to optimise your income and assets over time can be beneficial. This could involve restructuring your compensation package or increasing your savings.
The Importance of Competitive Rates and Flexible Terms
When taking out a large mortgage, even a slight difference in interest rates can have a significant financial impact over the loan term. High earners should be particularly mindful of the long-term cost of borrowing. Getting competitive rates and ensuring your mortgage has flexible terms can save you substantial money.
For example, you may wish to secure a fixed-rate mortgage for greater certainty or prefer a product with the option for early repayment without penalties. Understanding your financial goals and how they align with mortgage products is essential.
Protecting Your Financial Future
Finally, a large mortgage should be considered part of your broader financial plan. It’s essential to think about the future: how will changes in interest rates affect your payments? What are your plans for paying off the mortgage early or refinancing later? Building these considerations into your mortgage strategy can help protect your wealth in the long run.
It’s also advisable to have personal protection plans in place. For instance, if a significant portion of your income depends on an employed or self-employed salary, consider income protection insurance to safeguard your ability to meet your mortgage obligations if incapacitated and unable to work for a prolonged period.
How We Can Help
At Mortgage Broker Services, we have many years of experience arranging large mortgages for high-net-worth clients.
Talking to a mortgage broker who knows about large mortgages can make things much more manageable. We can help you understand what you must do and find lenders offering competitive deals for people like you.
We also take care of all the heavy work, from finding the right mortgage product and providing you with a detailed quote to submitting the mortgage application on your behalf and guiding you right through to the completion of your mortgage. This can save you valuable time and money and help you avoid pitfalls.
Call us today at 0333 772 1551 to get straight through to a qualified mortgage adviser (we don’t do call centres), or complete our 30-second contact form, and one of our advisers will be in touch.
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON YOUR MORTGAGE
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