You will seldom see HNWIs purchasing real estate with spare money. What they do instead is take out a mortgage or a bank loan on easy terms.
What drives the super-rich in the direction of borrowing or arranging for a mortgage? It is no secret they are free to cut a check to immediately pay USD 2,000,000 to USD 20,000,000. Flexible with their assets, HNWIs at the same time realize they may profit from using their cash in a different way, as mortgages and loans are effective financial tools. As a bonus, they are easy to obtain and the interest rates are oftentimes low.
With a regular bank, you will have to meet certain terms to take out a loan:
- stable income within the last 6 to 24 months
- for you to be eligible for large borrowings, your income shall be high
- if you aim for a mortgage, the down payment will amount to at least 15% of the property price
- you shall have a clean credit history (mind that in certain cases borrowers with no credit history may face difficulties when trying to take out a loan).
UHNWIs often experience issues with demonstrating stable high incomes that regular banks are used to like in the case with salaries. It may be straight disadvantageous or even harmful for them to do so. On a regular basis, they try to cash out only that much money enough to finance their regular day-to-day expenses, preferring to only invest on a large scale if the investment in question is likely to produce significant cash flows in the near future. Unfortunately, this is not always the case with real estate assets.
With wealthy individuals, their income and asset structure is by and large uneven and complex. While having a billion-dollar fortune, they may only boast a USD 10,000 monthly income on their bank account. Being criteria-led, regular banks oftentimes do not accept shares, fine art, or real property that HNWIs typically own as collateral to back up their would-be loan or mortgage.
This is where private banks come into play.
FYI: private banks accept UHNWIs as customers if their annual income is over USD 350,000-400,000 or net assets are above USD 3,000,000-4,000,000.
Private banks are known to lend money to UHNWIs on advantageous terms
Private banks do their best to accept mostly wealthy individuals as customers luring them in with flexible mortgage and loan terms. The thing is, a private bank tends to look at the bigger picture compared to regular lending institutions. They are interested not in a particular deal but aim sooner for long-term cooperation. Some private bankers admit they may even offer real estate mortgages to UHNWIs at a loss for the bank if the potential revenue from other services outweighs the money lost.
Back in 2020, some private bank customers got lucky to have taken out mortgages at the rate of 1% to 2%. Borrowers mostly favored variable rate borrowing instruments, yet in 2021 the trend changed and fixed-rate loans and mortgages overtook them in popularity. Based on the 2022 stats, the decision was both prudent and wise as most central banks started to increase the key rate which brought about more expensive debt servicing.
To lure rich customers, private bankers offer UHNWIs an opportunity to disclose their asset info and use the said assets to obtain a mortgage or a loan. Bonds, shares, and real property are treated as not only a customer’s portfolio but also as a cash flow.
In certain cases, a mortgage can be arranged without any investments. In part, it is secured with the purchased property cost just like regular banks do. Shares may be issued or assets may be pledged to secure the other mortgage portion.
Mind that the times are changing, and we are changing with them. Loan perception is being transformed as well. In earlier days, repaying your loans the soonest was seen as a wise and profitable strategy, while now UHNWIs opt for paying interest. What are the benefits of the above approach?
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Inherited loans: a recent profitable trend?
Each jurisdiction has its own laws. In some cases, they appear to protect the rich and the debt-ridden. Say, in Great Britain and France, a house you purchase with borrowed money, comes with reduced value you shall pay an inheritance tax on. Bearing in mind that the inheritance tax in the United Kingdom may reach 40%, the deal is no doubt a profitable one.
In case of non-doms (i.e., persons living in the United Kingdom on a permanent basis without being the country’s tax residents), the latter do not pay any capital gains tax when selling their main residence.
In France, if you buy a house with loan money, the property value subject to inheritance tax is reduced. Small wonder, property lawyers and consultants advise their customers to pay for real properties exclusively with borrowed funds.
When paying federal taxes in the US, you may deduct the interest you paid on the 1st USD 750,000 for at max 2 property units.
Surprisingly enough, the number of individuals over 55 who take out mortgages keeps growing. Some of them may even be over 70. The trend became clear in 2020–2021, when the rates were low. Wealthy baby-boomers used the opportunity to finance their deals with the loans and mortgages they obtained at super-low interest rates.
With mature borrowers, the tendency is to use equity release mortgages with no end dates that are paid off after the mortgagee’s death or the sale of their property.
Regular banks are not eager to grant mortgages to customers of the kind, while private banks that can see the bigger picture jump at the opportunity.
What is the best place for UHNWIs to get a profitable loan?
Unable to fathom their asset and income structure, regular banks often deny loans to wealthy customers. If this happens, it is high time to turn to a private bank.
Be it Singapore, the United Kingdom, the US, or the Caribbean, the International Wealth consultants will gladly assist you with selecting the private bank boasting the best loan and mortgage terms in any corner of the world, including high-value mortgages. Partnering with multiple private banks all over the globe, International Wealth will seamlessly arrange for fruitful and profitable cooperation with them for you, regardless whether you aim for European mortgages or offshore mortgages. To order the service and enjoy the related benefits, feel free to message us at email@example.com. The International Wealth professional consultants will contact you to open up the world of opportunities where private banks offer wealthy customers the best interest rates and flexible rules to purchase real estate.