In this brief guide, we are going to discuss private mortgages in the UK.
What is a private mortgage?
A private mortgage is a mortgage made by an individual or a business to an individual or a business. Usually, these individuals are not mortgage lenders but in some cases, private mortgages can also refer to private banks who offer specialist loans to individuals and businesses.
Most of this blog will focus on private mortgages from private banks but we will later discuss private mortgages from individuals or businesses.
What is a ‘private mortgage lender’?
A private mortgage lender is a term more commonly used to refer to mortgage lenders who lend to specialist clients. These are usually high net worth clients with special circumstances.
Private mortgage UK
When we think about private mortgages in the UK we usually think about a mortgage which is arranged between two private parties. This could be individuals or businesses. In fact private mortgages in the UK also refer to specialist private banks who are able to provide mortgages to high net worth individuals who have complex income situations or require unique mortgage terms. There are various private mortgage brokers and private mortgage lenders in the UK who will be able to assist you if you fall within this category.
Private mortgage lenders in the Uk will:
usually, work with borrowers looking to borrow over £500,000
Be happy to provide interest-only private mortgages
Usually, be able to work with borrowers with unusual income
Be able to provide loan to values of up to 95%
Be able to cater for residential or commercial mortgages
Be able to provide bridging mortgages, short term mortgages and buy to let mortgages
Be able to cater for high net worth individuals
Be able to cater for UK expats, non-domiciled UK residents, UK residents earning in a foreign currency and foreign nationals
Why are private mortgages needed in the UK?
Private mortgages in the UK satisfy a particular segment of the market where high street mortgage lenders may not be willing to lend to as most high street mortgage lenders have a maximum mortgage they will lend and this is usually one million pounds (£1m).
Many high street mortgage lenders will also not cater for mortgage borrowers with complex incomes and this is where private mortgages in the UK come in.
Most high street mortgage lenders in the UK will also only have a maximum loan to value of 75% for high-value property in London and this means most prospective mortgage borrowers may not be able to access high street mortgages for high-value properties. This is especially the case for clients who want to maintain liquidity but can afford to buy these kinds of properties.
Most high street mortgage lenders will also restrict how much they will lend on an interest-only mortgage basis and this creates a dilemma for borrowers looking for a more flexible approach.
The good news is that the private mortgage lenders in the UK are able to cater to all of these requirements.
Are private mortgages regulated?
Private mortgages are regulated when taken through regulated entities such as banks. You can check if the bank is regulated by checking the FCA register. If the private mortgage is taken through an individual or other business then it may not be regulated.
Can a friend lend me money to buy a house?
Yes, a friend can lend you money to buy your house by actually providing you with a private mortgage. You should seek legal advice before getting into this arrangement. A friend can also lend you money to buy a house by providing you with a gifted mortgage deposit. You should check if your mortgage lender will accept this and if they require a gifted deposit letter.
How much do private mortgage lenders charge?
Private mortgage lenders will usually charge higher fees than high street banks due to their bespoke and unique propositions. The interest rates they charge on their mortgage and loan products will typically be about 1% or 3% higher than the high street and the fees they may charge on these products could go as high as 10% of the overall mortgage or loan value.
What’s the difference between private and high street lenders?
The main difference between private and high street lenders is that high street mortgage lenders prefer to deal with more typical and less complex borrowers while private mortgage lenders deal with more complex borrowers. This works well as high street mortgage lenders prefer volume while private banks prefer bespoke services and hence little volume.
How do private mortgages work?
Private mortgages work by being more flexible by high street banks. Private mortgage lenders in the UK will usually look at mortgage applications on a case by case basis whilst high street banks typically have a set mortgage lending criteria which they will stick to in most cases and hence most customers with unique circumstances cannot access their services.
For example, when considering private mortgages in the Uk, the mortgage lender may consider the assets you have when assessing your mortgage affordability but most high street banks will have no interest in the assets you have but will be more concerned with your net income when considering your mortgage affordability.
When dealing with private mortgages you will find that compromises can be made by simply discussing with the mortgage lender whilst in the case of high street mortgage lenders, if you don’t meet the criteria then you won’t get a mortgage. Private mortgages in the UK are therefore more bespoke to the borrower.
They will typically use a system known as “assets under management” to assess your mortgage affordability. Private mortgage lenders will also take into account potential future income and look at it in a more favourable manner than most high street mortgage lenders would. This could be things such as future inheritance or work settlement packages.
This is why so many people who have been declined for a high street mortgage can then go on to obtain a private mortgage as they can find certain compromises with the private mortgage lender than with a high street mortgage lender. This is true for people who have complex income or no income but have huge portfolios of assets.
Private mortgages in the UK are more often obtained through private banks and private banks tend to have a more relationship-based approach rather than a transactional one as you may find with many high street banks. This means in many cases the private banks who offer these private mortgages will look to become involved with you even further by arranging more deals.
The advantages of private mortgages in the UK
There are several advantages of private mortgages in the Uk
Private mortgage lenders in the UK will also cater to people who are ex-pats, get paid in foreign currency or are UK non-domiciled.
Private Mortgage lenders also fill a huge space in the market where most high street UK mortgage lender vacates, this is the £500,000+ mortgage market. Most High street mortgage lenders place numerous restrictions in borrowing over £500,000. Some of these include caps on what percentile of the mortgage can be interest-only, caps on the minimum mortgage deposit and therefore the loan to value. Private mortgage lenders in the UK are able to offer part and part mortgages, mortgages which are completely interest only and usually have a more flexible loan to value rate as well as maximum mortgage amount than high street mortgage lenders. Private mortgage lenders will, therefore, have more products in the £500k+ range.
Private mortgages are more bespoke and in some cases, a mortgage product could be created uniquely for a specific borrower.
Private mortgage lenders are very flexible with their lending terms and this means they may be able to lend to borrowers who have very complex circumstances such as complex incomes or no income at all.
Private mortgage lenders in the UK will usually use the “assets under management” rule which means that your mortgage affordability can be significantly boosted in comparison to when going through a high street mortgage lender.
Private mortgage lenders in the UK may be able to consider you for private mortgage in the UK if you have bad credit as long as you have a suitable income and “assets under management”.
Private mortgage lenders in the UK may also consider your historical earnings when looking to decide on your mortgage affordability. This means that even if you are not currently earning any money right now as you have retired or for whatever reason, private mortgage lenders may still be willing to consider you for a mortgage.
Private mortgage lenders in the UK will also consider things such as your supplementary income, bonuses, pensions, investments and unusual assets such as boats, watches and even cars to be used as collateral and essentially boost your mortgage affordability.
A private mortgage could, therefore, be a good choice for people who have low salaries but high incentives such as bonuses or are paid with stocks etc. private mortgages could also be a great idea for those who have huge property portfolios or other investments
The disadvantages of private mortgages in the UK
Private mortgages in the UK also have some disadvantages.
Private mortgages usually have a minimum mortgage amount of £500k which means that most borrowers looking for conventional UK property may not be able to access them.
Private mortgages in the UK usually have higher APRs and mortgage fees than high street mortgage lenders.
Private mortgages can also be very difficult to access even with a good private mortgage broker. Because these private mortgages are offered by private banks who may have invitation-only policies or recommendations only then it may be hard for the average person to access their mortgage services.
Some of the private banks which offer private mortgages insist on the borrower having an account open with the bank and these bak accounts could come with high minimum deposits and high account fees. They may even have minimum income requirements or minimum asset requirements which you or the average person may not meet.
Getting a mortgage offer from a private bank could be more difficult as well. This is because the private mortgage lender may operate with some framework but no strict criteria so it isn’t a tick box sort of decision but rather one where consideration is given and meetings are held to decide on your mortgage affordability based on the information you provided.
A private mortgage broker could help you get a suitable private mortgage in the UK.
Private mortgages from individuals or people
Private mortgages can also be mortgages which are done between an individual or business and an individual or a business.
This may be quite common but there isn’t much data collected about it. Most private mortgages are probably mortgages made between family members or friends. If you are considering doing this type of family mortgage then there are some things you should consider.
Getting a private family mortgage
Private family mortgages can be good as you will not have to meet any strict mortgage affordability requirements and the interest rate you may have to pay will usually be much cheaper.
People often say that you should lend money to family or friends but in some cases, it may be worthwhile. If your family is one of the families who can afford to provide you with a mortgage to get on the property ladder then this is something worth considering.
When speaking of private family mortgages we aren’t referring to gifted deposits given to a borrower by their family member.
One of the main issues with private family mortgages is that if things go wrong then the situation could turn very sour quite quickly.
Private family mortgages are seen as a good way to pass on the property from one generation to another.
Seeking legal help before you get into this is, therefore, the best option.
Family private reverse mortgage
There are also family private reverse mortgages which are less common but in this case, a family member borrows money from another family member and this is secured against their property. It is very similar to an equity release.
ASs, before you could get favourable rates from family and your mortgage affordability, may not have to be perfect to access this mortgage.
Can you get a private mortgage?
Yes, you may be able to get a private mortgage from a private bank if you meet their requirements.
If you are getting a private mortgage from a private bank then using a private mortgage broker may be the easiest way to set up a private mortgage.
If you are setting up a private mortgage between individuals or businesses then seeking independent financial and legal advice on this may be a good start.
Using a professional private mortgage broker to arrange your private mortgage in the UK can be very risk-averse as if anything goes wrong you may be able to claim compensation from the financial services compensation scheme.
If you set up a private mortgage between an individual or a business and an individual or a business, then you may find that these mortgages may not be regulated and if things go wrong you may have no one to really complain to and your only plausible course of action may be through the courts to seek relief.
Seeking appropriate legal advice before you get into this kind of private mortgage is worthwhile.
Some of the things you may want to include in a mortgage agreement with another individual or business include:
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 to be drawn up.
These could include:
The legal rights to repossess the property and when they can be enforced
The mortgage term
The mortgage amount
The mortgage rate and if it is fixed or variable
The mortgage repayment schedule and due dates
If interest can change
How interest is charged ( weekly, daily etc)
How the mortgage can be redeemed
What happens in the case of a missed payment or default
Restrictions on letting and subletting
This is in no way a full list of things you should consider so please see legal advice.
Can I use a private lender for a buy to let mortgage?
There are some private mortgage lenders who will offer buy to let mortgages but you may require a buy to let mortgage broker to explain the benefits of using a particular private mortgage lender as their offerings will differ from one to another.
Can I use a private lender for a commercial mortgage?
Yes, private mortgage lenders in the UK offer commercial mortgages but again their offerings will differ from one mortgage lender to another and using a commercial mortgage broker will help you decide which commercial mortgage broker you want to use.
Can you get a private mortgage with bad credit?
Getting a private mortgage as a single borrower with bad credit may be difficult as mortgage lenders may usually want to lend to borrowers who have a good credit score and have shown a good repayment history on all their previous debts.
There are however mortgage lenders who will offer a private mortgage to a borrower depending on what type of bad credit was and what the circumstances were.
If it was a CCJ which was satisfied and is a certain age then some mortgage lenders may be willing to lend. Other mortgage lenders may lend if the CCJ was a maximum amount.
When looking to get a mortgage with bad credit the requirements from different mortgage lenders will differ and a bad credit mortgage broker may be able to assist you in getting a private mortgage.
Bad credit could include:
A debt management plan
A home repossession
How to apply for a private mortgage?
To apply for a private mortgage you may want to first contact a mortgage broker.
Mortgage brokers are important as they can access private mortgage products from across the whole of the market in some cases. This could be over 1000 private mortgage products. This may have some advantages than going directly to a mortgage lender.
A mortgage broker will look to understand your financial circumstances and then provide recommendations on which private mortgage products may be suitable for you.
After giving you these mortgage recommendations, most mortgage brokers will seek your consent to apply for a mortgage in principle. This will allow you to shop for your home easier as more estate agents and sellers may take you seriously. Once you have found a home you want to buy the mortgage broker will then look to get you a mortgage offer.
This will come with a key facts illustration document which details out the features of your mortgage including how much you will pay per month if there are any limits such as early repayment fees, or annual overpayment limits.
If you are happy with everything you can then go on to secure your private mortgage with the help of a conveyancer.
In this brief guide, we covered private mortgages in the UK. If you have any questions or comments please let us know below.
If you need financial advice and you live in the UK then you could contact the Money Advice service over the phone or via chat for impartial advice.
You can also contact the debt charity “Step Change” if you are in debt and need help.