Banks maintain inflexible lending criteria

According to Investec almost a third (32%) of IFAs say that their clients are expecting at least half of their bonus for the 2010/2011 tax year to be paid in cash or deferred cash with the remainder likely to be paid as shares or share options.

Investec says that FSA proposals that 50% of bank bonuses should be paid in shares, share-linked instruments or via equivalent non-cash routes, could make it more difficult for many of these individuals to secure large mortgage loans.

Whilst almost one in 10 (8%) of IFAs questioned said their clients are expecting their bonus to consist almost entirely (91-100%) of cash or deferred cash, a further 28% understand that cash will account for less than 10% of their clients’ bonus payments this year. Investec has warned that these individuals could be penalised when it comes to applying for large mortgage loans as many banks will look at the value of a clients’ property rather than their income and overall assets.

Jack Jones of Investec Specialist Private Bank said, “These findings show that while cash is still likely to feature bonus payments this year, many people will receive bonuses via non-cash routes such as shares or share-linked instruments. Although many of these individuals look set to receive significant bonuses, some will struggle to get mortgages and other personal loans approved due to the less flexible lending criteria adopted by some banks.”

Over three quarters (78%) of the IFAs surveyed say their clients are expecting to receive their bonus payment within a year or less, despite the forthcoming FSA regulation that will force those receiving a bonus, to defer up to 60% of it for three years or more. Investec believes that these results highlight the divergence in understanding between forthcoming industry regulation and the expectations of those due to receive bonuses.

Interestingly over a fifth (21%) of IFAs surveyed said that their clients have been discussing their financial plans with them earlier this year than in previous years. This is likely to be partly due to the introduction of a new 50% tax rate on incomes over £150,000, which starts from 1 January 2011.

Jack Jones continued, “We concentrate on the intricacies of a client’s finances in order to better understand their ‘true’ wealth, as opposed to taking the rigid stance adopted by many other lenders who remain focused on the property asset rather than the individual. We have the experience and expertise to structure a lending facility which accommodates their financial requirements.”