Robin Hood was famous for robbing the rich to give to the poor and – given some of the reaction to the Mortgage Market Review (MMR) – you could be forgiven for thinking that high net worth clients were attempting the reverse.
The attitude in some quarters seems to be that it is a case of one set of rules for one and a different set for another; or that it is unfair that richer borrowers should now be exempt from the legislation and criteria facing typical loan seekers. However taking a ‘one size fits all’ approach benefits no-one and surely the main point of regulation is to protect the best interests of each individual client?
Aside from the paper providing a widely predicted focus on the overall notion of Treating Customers Fairly and trying to hardwire a more conservative but common-sense approach to all areas of lending, there were two fantastic developments for HNWs and entrepreneurs alike.
Firstly entrepreneurs (business people borrowing against their homes) would enjoy far more flexible criteria and would even be able to ‘opt out’ of standard affordability and criteria tests proving they could provide a credible business plan. Being an entrepreneur myself, I’m a huge supporter of any plans to help wealth creation for business owners. Nevertheless, the devil will be in the detail here, as if banks aren’t willing to play ball on rates or loan to values, more traditional alternative funding routes used by entrepreneurs may still be the quickest and simplest option.
Secondly high net worth individuals — those earning upwards of £300,000pa or that have a net asset base of £3,000,000 or greater — can also enjoy a greater degree of flexibility and will be able to opt out of standard criteria tests.
I’m delighted with the exemption for HNW borrowers. Otherwise it’s like trying to bang a square peg into a round hole where HNW clients are concerned. When an HNWs income is complex, or as is often the case, where income is irregular but personal or family wealth is vast, standard affordability checks are pointless as the risk to the bank is miniscule.
All things considered, the MMR’s willingnesss to show a degree of flexibility for HNW individuals must surely be welcomed by all. We obviously don’t want to see a return to the days of easy credit before the global financial crisis which was one of the main reasons for the economic predicament we now find ourselves in, but sensible lending doesn’t have to mean box ticking and to hell with anyone who doesn’t fit the profile.
This is fantastic news for our clients and the HNW sector as a whole and finally a common sense approach in a market that has lacked just that for too long.
Hugh Wade-Jones is director of Enness Private Clients