Broker says wealthy clients are cautious on long-term commitments as lenders tighten checks on foreign income
High-net-worth borrowers are showing more caution over longer-term fixes as geopolitical volatility reshapes mortgage conversations, according to Simon Upton (pictured top), director at Independent Mortgage Solutions.
Upton said wealthy clients were not asking fundamentally different questions from other borrowers, despite often having more complex income and asset profiles. The main difference has been in the advice process, with more focus on product flexibility and the risks of locking into longer-term fixed rates while pricing remains elevated.
“The conversations we’re having with high-net-worth clients aren’t any different from those with a regular client,” Upton told Mortgage Introducer. “They still have the same concerns, the same questions. No disrespect, but just because they’re high net worth doesn’t mean they understand the mortgage market any more than the next person.”
Fixed rates rose sharply over a six-week period before beginning to ease, leaving many borrowers unwilling to commit to longer terms at pricing they expect may prove temporary.
He said some borrowers were now considering shorter fixed-rate terms or variable products where their finances allowed. The approach, he said, was intended to preserve flexibility if fixed-rate pricing improves later in the year.
“We’ve shifted toward recommending shorter-term fixed rates or, for the right client, variable rates,” Upton said. “We’ll put a client on a variable rate and then monitor their options once a quarter. When the fixed rate market comes down to something that looks more appealing, we can act — because variable rates don’t tend to carry early repayment charges.”
The shift marks a change from the start of the year, when Upton said five-year fixes at about 3.7% to 3.8% made more sense for some clients. Since then, borrowers have become more reluctant to commit to longer terms, amid concern that current rates may prove to be a temporary spike.
“I think a lot of people would be reluctant to fix for five years because they’ll look back in 12, 18, 24 months and think — weren’t they high back then,” Upton said.
Trackers have also become more relevant for some high-net-worth borrowers. Upton said that in some cases the gap between tracker rates and fixed rates was wide enough to make a variable product worth considering, provided the borrower understood the risk and had the capacity to absorb higher payments.
“With some deals, there can be up to three-quarters of a percent difference between the tracker rate and the fixed rate,” he pointed out. “That means the base rate would have to rise three times — assuming 0.25% increases each time — before the tracker even reaches the equivalent fixed rate available today.”
Six months ago, he noted, some fixed rates sat below tracker rates entirely, making variable products an unattractive proposition. The dynamic has now reversed.
For brokers handling larger loans, lender process can offer more scope for discussion. “When you’re dealing with larger loans, most lenders have a specific department with dedicated underwriters that handle only the bigger cases,” Upton said. “So there’s already a more bespoke underwriting procedure in place, which helps.”
However, overseas income remains an area where lenders are taking a cautious view. Upton said lenders commonly convert foreign earnings into sterling and then apply a haircut to allow for currency movements, with reductions of up to 25% in some cases.
He cited a current case involving a Dubai-based client paid in US dollars, where the lender converted the income into sterling, applied a haircut, and then treated the reduced amount as gross sterling income. Upton said that approach could meaningfully understate affordability where the borrower pays no local income tax.
“That’s a touch unfair, because that is his net income — he pays no tax in Dubai,” he added. “So in effect, lenders are deducting the haircut and then treating that reduced number as gross, which means they’re assuming another 30 to 40% will be taken for tax, when actually none will be.”
For advisers, Upton said the core obligation had not changed. Brokers still need to explain the risk profile, stress-test affordability and ensure clients understand exposure to interest rate movements. The difference, he said, is that volatility has made those risks more apparent.
“You have to explain the risks,” he stressed. “You have to explain the risk profile. Clients are exposed to interest rate movements and to volatility around the world.”
In an uncertain market, Upton's message to fellow advisers is simple: the fundamentals of good mortgage advice have not changed. What has changed is how urgently clients need to hear them.
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