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Private mortgages

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By Pete Mugleston  | Mortgage Advisor Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 12th July 2019 *

In the context of property, the term ‘private’ is generally associated with high net worth borrowers and the private banks that often finance them - but there’s a lot more to it than that.

In this article, we’re going to challenge some of the myths and misconceptions around private residential mortgages and private mortgage financing.

Want to know more about private bank or engaging the services of one? Get in touch with some of the experts we work with.

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What is a ‘private mortgage lender’?

Typically, the term ‘private lender’ is used to refer to private banks. Many such banks have existed for hundreds of years, but have limited their clientele to a small, high-net-worth elite.

Times change and today you may be surprised to discover that accessing the services of such a bank is easier than you think.

What’s the difference between private and high street lenders?

Since many ‘high street’ banks started offering high-value mortgages, making the comparison of ‘private mortgage lender vs bank’ is not quite as simple as it was.

However, as a general rule, private mortgage lenders take a different approach to financing deals than the high street banks. High street banks tend to work at high volume, imposing certain check-box criteria to applications and rarely, if ever, bending the rules for an applicant.

How does private mortgage lending work?

Private mortgage companies can be much more flexible - they tend to look at applications on a case by case basis, and are often willing to look beyond basic income when considering your affordability.

Put another way, things are often more negotiable with a private bank, and more closely tailored to the individual circumstances and needs of the borrower.

As a result, it’s not uncommon to find people obtaining a mortgage from a private bank after being declined by multiple high street lenders. This is particularly the case for people looking for large mortgages, or for those with multiple income streams.

However, working with a private bank can be very different from working with a conventional one. It’s less of a ‘transaction’ and more of a ‘relationship’. Many private banks are not willing to simply do a one-off deal and part ways, they’re looking for an arrangement in which they can work with you over the long term.

Whereas regular lenders tend to focus on your income, private banks often use a system called ‘Assets Under Management’ - which involves looking at all of your assets when determining your affordability.

They will also be more receptive to anticipated future incomes such as inheritance and financial settlements such as “golden handshakes”.

What are the advantages and disadvantages of private lending?

Using a private lender has a number of benefits as well as potential drawbacks, and it’s important to familiarise yourself with both before you proceed.

Private banks: The pros

Using private lenders for mortgages comes with a number of benefits over turning to a traditional mortgage provider, and they include...

They’re often more flexible with their criteria

As a general rule, a private bank is far more flexible about what it will accept in terms of your financial background - which is an advantage of the ‘assets under management’ model. If you have significant credit issues but can offset that with significant financial assets, this can make the difference.

Unlike many high street banks, they’ll look holistically at your earnings - going beyond your basic income, and taking into account things such as your bonus, pension, and other physical assets like property. Some will even factor in luxury items such as cars and watches when considering what to count as collateral.

As a result, private banks are very appealing to borrowers with complex income streams. Examples include high net worth individuals who are paid a relatively low ‘basic’ salary, but large performance-related bonuses, or those who hold income-generating property and share portfolios.

They’ll also work with the kind of people who regular banks often struggle with - such as expats, UK non-domiciles and people who regularly get paid in foreign currencies.

They often have more product choices

When it comes to the £500k and up mortgage space, many private banks have more to offer.

Private mortgage interest rates are often better than their high street alternatives. Many private bank mortgages are able to provide other terms, larger mortgages, higher loan to value LTV, interest-only deals, part and part and buy to let options.

‘Case by case’ extends to the offering as well. A private banking mortgage often takes the form of a ‘bespoke’ financing arrangement that meets your exact needs. Creating a one-off mortgage with completely unique terms isn’t usually something a conventional lender is open to.

They often provide a more ‘premium’ service

It wouldn’t be ‘private' banking without a certain level of service and exclusivity. Such banks are very much suited to the borrower who wants a more ‘personal’ service, and who’s willing to pay a premium for it.

Private banks: the cons

As with any form of borrowing, there may be some drawbacks to using private lenders for mortgage loans which apply to you. These include…

They can be more difficult to access

Though many private banks are not quite as exclusive or secretive as they once were, that doesn’t mean you can just call one up and open an account.

Some operate on the invitation-only model, and many impose certain financial restrictions, such as a minimum annual income, or a minimum amount of assets.

Getting approved can be less straightforward

Whereas a high street lender operates to relatively formulaic ‘checkbox’ criteria when it comes to approving a mortgage, the ‘bespoke’ nature of private banks often extends to your application for a loan.

This is why it’s an excellent idea to work with a mortgage advisor who has experience, and who knows how to make

There may be more fees to pay

Private banks provide a level of service that is often beyond what you’ll get on the high street. The fees they often charge can reflect this.

What is a 'private mortgage’?

Many people ask us how to get a private mortgage, without understanding that the term can actually refer to two different things:

Scenario 1: A mortgage from a private bank or some kind of lesser known financial institution.

Scenario 2: A mortgage made by an individual or business that does not traditionally loan money (such as a large inter-family loan).

We’ve covered scenario 1 earlier in this post, so now we’ll talk about scenario 2.

Working with (or acting as) a non-traditional lender

A private mortgage agreement can refer to a deal made by you (or for you), which doesn’t involve a traditional lender. The most common example is inter-family lending, which we cover in the next section.

Private family mortgages

An old truism tells us ‘never lend to friends or family’, but that doesn't stop a lot of people from doing just that.

Getting a private mortgage from a family member in the UK is less common than the conventional route, but is a time-honoured option amongst families lucky enough to have the capital.

For example, it's a traditional way to transfer wealth amongst generations, or help children and grandchildren to get onto the increasingly expensive property ladder.

The advantage of getting a private mortgage from a family member is that the terms are usually better than what you'd get from a bank.

For example: no matter how stellar your credit - a lender will never give you an interest free loan, but a close relative might. And a family member may be willing to lend to you when no other financial institution will.

The obvious downside to private mortgage loans for family are that, if things do go wrong later, relationships can be ruined.

Another, lesser popular form of this financing is a family private 'reverse mortgage'. This works a little like an equity release scheme, in which an older relative can borrow funds secured against their property, except instead of borrowing from a traditional bank - they borrow from a family member.

Again, because it's an agreement amongst family, the terms of the agreement can be more favourable, avoid additional lending fees and, when properly structured, it can be a great way to pass on the property.

How do I set up a private mortgage loan?

We’re often asked how to setup a private mortgage loan - but non-professional private mortgage lending can be hazardous, and is not something to be taken lightly. Why?

Well, professional mortgage advisors are very careful when selecting lenders and due diligence is done on every case to make sure that the lender as well as the products they are selling are suitable.

Asides from the fact that mortgage financing can be complex, and you can generally trust professionals to do it properly - one of the main advantages is that this protects the borrower should the worst happen.

Arranging your own mortgage financing directly from non-financial institutions can have its advantages, but can also be risky. It’s not always regulated and therefore protected. In such arrangements, private mortgage rates and the terms of your arrangement can vary wildly.

If you do want to go ahead with such an arrangement, seeking advice beforehand is extremely important.

It’s also worth considering what to include in the private mortgage documents that you’d want drawn up. These could include:

  • Terms that make the agreement enforceable
  • Well defined dates and quantities for payments on principle and interest
  • Obligations to maintain and ensure the property
  • Terms that govern how interest is charged, on what basis, and how this can change
  • Letting and subletting restrictions
  • The legal right to repossess and sell the property

Again, we stress that this is just an example. If you’re considering entering an arrangement like this because you’re having trouble finding financing, speak to one of the expert advisors we work with first. They might be able to find you a professional solution and save you a lot of trouble.

Can I get a private second mortgage?

It's possible, but second mortgages are typically treated more strictly than first mortgages. This can mean higher interest rates, lower loan to value (LTV) ratios, and a stricter financial stress test.

Still, if you fit the lender's affordability criteria, haven't overextended yourself on your first mortgage and the second property is structurally sound - a private second mortgage lender might be more sympathetic to your circumstances.

You can read more about second mortgages here.

Do high-street banks offer private banking?

Yes, many of them do - but just like most private banks, there are eligibility requirements.

Natwest's private banking mortgages are offered through their 'Natwest Premiere' service - and they're not the only ones. For example, HSBC, Lloyds and Metro are just some of the high-street lenders with their own, sizeable private baking arms.

The advisors we work with know exactly which lenders offer private services and may also be able to secure broker-exclusive deals for you, if you apply through them.

Can I use a private lender for a buy to let mortgage?

Yes - and it's not uncommon for this to be the case, especially since many buy to let arrangements can be quite complicated, from a financing point of view.

You can find general information about buy to let mortgages in our buy to let hub.

Can I use a private lender for a commercial mortgage?

Yes you can. In fact, private lenders take up a disproportionately large share of the  commercial mortgage market, due to the often 'bespoke' nature of commercial financing agreements.

You'll very often find specialist private lenders behind the financing of some of the larger commercial mortgages, your typical high street bank or building society has much less of an appetite for that kind of risk.

Check out our guide to commercial mortgages for more information.

Can I get a private mortgage with bad credit?

Private mortgage lenders for bad credit do exist...

Lending criteria aren’t as rigid as they are on the high street since private lenders are generally more concerned about the security property and the overall strength of the application - so private mortgages for bad credit aren’t out of the question.

That said - if you have bad credit, and you are pursuing this route, we strongly advise taking professional advice before signing any paperwork.

Read more about bad credit mortgages.

How can a private finance mortgage broker help me?

It almost always pays to speak to the experts - especially when there’s so much money on the table. Here’s a few reasons why.

An advisor knows which lenders to go to

A good broker knows whether a private bank is right for you, and, if you are, can help make the connection and the proper case for financing.

Private mortgage brokers have working relationships with a huge range of lesser-known lenders and private banks that are not generally on the average borrower’s radar. After carefully looking over your entire financial situation, a great broker can get a very good idea of what lenders (whether private or high street) would be best suited to your unique needs.

In fact, we’re regularly approached by borrowers who’ve found themselves being turned down by high street lenders. In many instances, the private mortgage advisors we work with are able to sift through their network to find a more appropriate private lender, and get the deal done.

An advisor is efficient

The market can move fast, and delays can mean the difference between closing and frustration. A good broker knows how to cut through the red tape and the forms approved first-time. Which means successfully closing deals more often than not.

An advisor gives you peace of mind

Mortgage financing can be intricate at the best of times, and dealing with a private bank can add another level of complexity to things. Working with a great mortgage advisor gives you the reassurance that, no matter how high the stakes are, you’re in the right hands.

How to find a private mortgage lender

The best way to find a private lender is by making an enquiry with us. A certain amount of secrecy is typical amongst private lenders and many of them operate as broker-only, or introduction-only.

The specialist, whole of market brokers that we work with have built up a large and diverse network that includes many of the best private mortgage lenders. As such, you can enjoy unparalleled access to a set of specialised lenders that most people have never heard of.

The brokers we work with also know which specific lender might be best for you - considering your unique circumstances and the property in question.

Ultimately, this means that you’re far more likely to get the best deal possible.

Speak to an expert about private mortgage finance

The advisors we work with have connections that span the industry. From well known high street names to elite private banks, broker-only outfits and niche investors - if one of these companies has the right deal for you, one of our brokers can make it happen.

Need a little help? Call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry here.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. - We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 12th July 2019
OnlineMortgageAdvisor 2019 ©

FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The info on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.