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Thursday, December 2, 2021

How the super rich buy a house

Earlier this year, mortgage broker Paul Welch arranged financing for a Singaporean client who bought a house in London for £7 million – and did not pay any deposits as a deposit.

“In addition to the property itself, we also use existing assets, such as personal stocks,” said Welch, who runs largemortgageloans.com and arranges a 1% interest rate mortgage. Most British homeowners think this condition is so good. It’s unbelievable.

Over the years, under the guidance of lawyers, accountants, and bankers, the super-rich have been collateralizing the world’s most expensive homes-usually up to 100% of the value of the property. Most loans are interest-only; most people will never pay off unless the house is sold; more and more, when the house is inherited, the next generation will get similar loans. The money saved can be shuffled around the world to find the best tax transaction and maximum investment income.

With annual net income of more than 300,000 pounds or net assets of more than 3 million pounds, Welch’s customers enjoy a wider range of choices compared with other UK mortgage customers. Borrowing money-and buying it in London-will bring benefits. Many people are non-resident residents (RND), which means they live in the UK but declare their residence elsewhere, so as long as they don’t bring them in, they won’t be taxed on money earned abroad.

“It’s effortless,” said Mark Davis, a tax adviser to the super-rich in London, most of whom are non-residents. “[Borrowing] It means that your money is working in two different places to create wealth.You own a house in london [which may increase in value] You also invest your money overseas. “

For the super-rich, the total value of multiple home loans can reach hundreds of millions of dollars, and international private banks usually lend this money. They usually settle loans faster than commercial street banks and help customers snap up bargains.

Roddy Boulton, a private banker at Deutsche Bank in London, said: “If you find something you like, you might want to buy it quickly, whether it’s in southern France, the Caribbean or Miami.”

Those who provide or arrange home financing look for potential customers at trade shows, where very wealthy people buy superyachts or private jets, or in activities where they enjoy their pastime. Welch also arranges financing for the purchase of yachts and jets, and he estimates that he has gained 500 million pounds of potential customers by distributing branded sunglasses cleaning cloths from his booth at the Monaco Yacht Show.

He is also a frequent visitor to the Geneva European Business Aviation Conference and Exhibition. Classic and super sports car events, such as the British private salon at Blenheim Palace and the Goodwood Revival, are also popular mixed venues, as well as VIP access to the paddock clubs for World Formula One competitions.

Private banks may host events at the World Economic Forum in Davos to attract current and potential customers through celebrity speeches. Financiers make sure they let the super-rich advisers—including lawyers, accountants, and tax advisers—the latest information they can provide. The staff of the super-rich visited the UHNW Convention to learn about the services provided.

“People can talk,” Davis said. “A billionaire might introduce another:’These people are very good [for arranging a mortgage], Give it a try’;’Credit Suisse has done a great job in this aspect; I used UBS for this and they are all very good. ”

The super-rich mortgage loans are usually more expensive to manage than ordinary customers’ banks-partly because their income rarely comes from typical sources such as wages, so it takes time and effort to understand. But if they secretly spy on lucrative businesses—such as managing stock and bond portfolios or selling new shares to customers as part of an initial public offering—bankers may sell them at a low price.

“Loans can usually open the door,” Bolton said.

©Nick Longz

A private banker in the Monaco office of a large global bank who asked not to be named said that if the income from other services exceeds this point, he will borrow money at a loss. Recently, he tried to attract 3 billion US dollars worth of customers from a rival bank and offered him a 60 million euro loan at such a low interest rate that he knew that the lending department would refuse. The potential customer still refused, because—the banker believed—the existing bank’s conditions were better.

Earlier this year, Welch obtained a £45 million mortgage for a client from a private bank for a £50 million London house. “first day [there was] It’s just that the gentleman agrees that they will develop a broader relationship. If banks need customers, they will do whatever they want,” he said.

Melissa Cohn (Melissa Cohn) is a professional mortgage broker in the United States, responsible for William Raveis Mortgage in New York, Florida and Hampton. This year, it has arranged a home loan worth 400 million US dollars, amounting to 3 million US dollars. To 19 million US dollars. She said that the typical interest rate for these loans—most of which is just interest and with a maturity of 30 years—is now between 2.5% and 2.9%. Recently, the decline in interest rates has caused her clients to increase their home loans, freeing up equity to invest in their own businesses or the stock market, where they believe they will get a return higher than the cost of the loan.

“At the beginning of 2020, when the interest rate is 3.5% or 3.75%, my clients will [borrow] 50% to 75% of loan value. Now, everyone wants to get as much as possible. The attitude is: why don’t you do this, if you don’t, you are stupid. “

Private bankers said that although most customers still prefer floating-rate loans, more and more customers are considering using fixed-rate mortgages with the expectation that interest rates will rise in the future.

Several British high-street banks will currently offer mortgages of up to £10 million-NatWest is the best interest rate at this level in late October-but borrowers must be able to demonstrate a clear historical income to show that they are able to repay the loan .

“High Street Banks are standards-oriented—they have the lowest interest rates and fees, but there are no terms for negotiation and less flexibility,” Welch said.

This does not disqualify all super-rich people—for example, a hedge fund manager with a fixed salary and a clear history of annual bonuses. But their unconventional income is often rejected by mainstream banks. They cannot meet their affordability standards and push them to private banks.

“They may have a wealth of assets, but they only [as income] What do they need to live on. Private banks are more focused on the bigger picture, such as corporate retained profits, private equity investments, stock portfolios or art,” said Jonathan Harris of Anderson Harris, a London mortgage broker. So, for many of hers For customers, Cohen will go to smaller local banks, banks that specialize in savings and loans, or credit unions (non-profit organizations owned by the people who use their services).

“[This route] Applies to people who can meet the 90% lender’s guideline with some exceptions—perhaps bankers whose income grew exponentially last year, so their two-year average income does not reflect this.Or they want to own their own home through a limited liability company [limited liability company] ——Maybe it is a celebrity who wants to keep his identity secret,” she said.

©Nick Longz

For less traditional income—for example, the founder of a start-up company made a loss last year, but now earns $100,000 a month, she said—she will try non-bank lending institutions such as Sprout and Lendsure.

In the United States, although Covid saw loan interest rates drop, it also weakened the conditions under which Cohn can provide mortgages to customers: LTV ratios and maximum loan amounts have fallen, and customers need better credit scores, but some restrictions still exist.

The exact tax benefits associated with borrowing money to buy expensive homes vary from country to country. In France and the United Kingdom, buying homes with borrowed money will reduce the value of homes subject to inheritance tax. The mortgage part of the house value is exempt from the French wealth tax. “There, the client’s lawyer will advise them to buy a house with the borrowed money,” said the Monaco banker.

In the United States, taxpayers can deduct interest paid on the first $750,000 (up to two properties) from their federal tax bill. If the mortgage is drawn before December 15, 2017, the amount will increase to $1 million. British residents, including resident non-domiciled persons, are exempt from capital gains tax when they sell their main residence in the UK.

In addition to the tax incentives based in the UK, the prospect of rising house prices is also part of the attractiveness of Davis customers to buy homes. Steve Goodrich, head of research and investigations at Transparency International in the United Kingdom, said that the same characteristics are very attractive to criminals, who buy houses through companies to conceal their identity.

10 million pounds

The highest mortgages offered by several British high street banks

“UK real estate provides an attractive investment environment for those seeking a safe haven for tax savings or dubious wealth. Currently, it is too easy to hide people who control large amounts of residential assets behind opaque corporate structures, which are usually in the UK One of the secret offshore financial centers is registered,” he said.

Record low interest rates and the high value of homes owned by baby boomers mean that the super-rich are not the only ones who want to borrow as much money as they can’t afford.

In the UK, more and more elderly wealthy homeowners are using loans to supplement their pension income, gift deposits to family members or purchase a second home. The rapid growth of loans to people over 55 years old is mainly driven by the increase in equity release mortgages. Mortgage loans have no end date and are usually paid off when the mortgagee dies and the house is sold.

Monaco Yacht Show, people who provide or arrange family financing seek potential customers

Monaco Yacht Show, where people who provide or arrange home financing look for potential customers © Patrick Aventurier/Getty Images

According to data from UK Finance, in the three months to December 2019, people over 55 issued 12,520 new equity issuance mortgages, up from 6,130 in the same period in 2014.

Like RND, part of the appeal of this group is the tax advantage, as the mortgage value of the house is exempt from the 40% inheritance tax on British estates over £325,000.

“For the generation of our parents or grandparents, if you have a mortgage in later life, you will be stigmatized-when you pay it off, it’s a victory. Now people realize that you might There will be a lot of inheritance tax liabilities,” Harris said.

He said that the typical interest rate for equity issuance mortgages is now between 2% and 3%, compared to 5% to 7% five years ago. Many banks offer lower prepayment fees and the ability to pay interest. The life of the mortgage, rather than let it compound.

Five years ago, one in 20 mortgages arranged by Harris was provided to older borrowers seeking equity release; now this ratio is one in five, and customers over 70 have “increased substantially.” But since most people are looking for a mortgage of 200,000 to 1.5 million pounds, you are unlikely to see Harris doing business presentations at Monaco Yacht.

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