What is the High Net Worth Individual Exemption and how did we make it work for our clients?
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Our clients were a married couple who had sold their previous home in order to buy a new, £2.9 million property. They decided to keep part of the proceeds of the sale as a liquid asset and therefore required a mortgage of £900,000.
Alongside the proceeds of the sale, the husband had recently been gifted £1,000,000 by a family member to invest in a liquid stocks and shares portfolio. Therefore, he had at least £3 million in liquid assets in his sole name.
The complicating factor in the case came in securing a mortgage against the couple’s income. As a stay at home mother and newly graduated Doctor, their joint income was circa £40,000 per year. The loan at 22.5 times income multiple, wouldn’t have passed affordability requirements.
Our team’s experience in working with HNWI meant we were able to advise them about a little-known HNWI exemption. Simply put, this is an exemption on consumer credit agreements entered into with high net worth individuals meaning that, if certain requirements are met, the lender does not need to comply with the requirements of the Consumer Credit Act of 1974.
In order to qualify, you must either have earned, net of national insurance contributions and income tax, no less than £150,000 during the previous financial year; and/or throughout that year held net assets of not less than £500,000, excluding items such as a primary residence and pension contributions.
Our lender – a private bank – was able to exercise their HNWI exemption rule and essentially use our client’s liquid assets as a form of income. This enabled them to achieve the desired loan amount. Additionally, our expert adviser team agreed the loan on an interest only basis, making the monthly payments affordable, based on the couple’s income. The clients were delighted that we had found a way to fund their dream home and leverage their finances, without needing to draw upon their portfolio.
|Rate:||2.64% 5 year fixed rate|
|APRC:||Overall cost for comparison 3.30% APRC representative variable|
|Loan purpose:||Residential Purchase|
|Lender’s arrangement fee:||0.5% of loan amount|
|Early repayment charge:||5% for 5 years, decreasing by 1% each year|
This case study is for information and illustration purposes only. It is not an offer, or suggestion of an offer. Each mortgage case is assessed on an individual basis and there is no guarantee that the solution described here can be repeated in the future.
Please note that this specific deal may not be available to – or suitable for – all customers, dependent on their individual circumstances. The rate quoted may become out of date at short notice and may not be available at the point at which customers enquire about it. This document may not contain all the information needed for customers to make a decision and they should seek advice.
Overall cost for comparison 3.30% APRC representative variable based on 62 payments at the lenders fixed rate of 2.64%, followed by 58 payments at the lenders variable rate currently 3.50%. Because all, or part of, the mortgage is currently, or will revert to a variable interest rate mortgage, the actual APRC could be different from this APRC and the payments could increase, if the interest rate of the loan changes. For example, if the interest rate rose to 10.50%, the APRC could increase to 6.30%. The actual rate available will depend on your circumstances. Ask for a personalised illustration.
Your home or property may be repossessed if you do not keep up the repayments on your mortgage. Changes in the exchange rate may increase the sterling equivalent of your debt.