How High Net Worth individuals should buy complex prime property



Alpa Bhakta, chief executive of Butterfield Mortgages Limited

Anyone with experience of buying a home can tell you: there is no such thing as a simple property purchase. This is never more true than in the case of luxury real estate, given the intricacies and challenges that can arise from the unique nature and scale of prime properties, which make premium property an altogether different proposition to a more modest home purchase.

Regardless of whether the individual is looking to purchase a luxury property for their own dwelling, or as a high yield long-term investment asset, it’s important to seek out expert guidance at every step of the purchase, to ensure the smoothest route to completion. Buyers will often, with excessive optimism, assume any issues will be mere bumps in the road. After all, wealthier individuals have greater resources at hand to assuage concerns in a timely manner.

However, the nuances of prime property mean that an ill-considered approach can result in spiralling costs, or even the collapse of the purchase. As such, HNWIs should ensure they prepare diligently for the entire purchase process, in order to protect their investment capital from the risk of unforeseen costs.

The importance of bespoke consultancy

A typical smaller home purchase can be handled with ease by most qualified professionals – in fact, these have a kind of ‘one size fits all’ approach to success, which keeps the property market moving quickly.

This is because most properties on a smaller scale have a wealth of contemporaries they can be directly compared with, in a UK property market with high levels of transactional activity – so accurate information can be gleaned from other sales as well as the expertise of those assessing the property.

With luxury properties, a more considered approach is required. Buyers must be alert to the need for a bespoke approach to planning and problem-solving, taking in the expertise of specialist solicitors, valuers, surveyors and conveyancers, as well as financial and marketing experts. This is part and parcel with the reality of owning a luxury property – with the grandeur and scale involved, there will necessarily be unique challenges to navigate.

Firstly, luxury properties will likely be comparable to considerably fewer recent sales, due to the intricacies of the design or complexity of the build. Further, while square footage and location remain important, outside factors come into play, such as security and the viability of planning applications for new owners to alter the property to their own needs and desires.

The scarcity of comparable contemporaries on the market can also cause headaches in surveying and conveyancing; where the complex design and build, alongside the typically opulent scale, can uncover problems with the property, of a far more unexpected nature than with smaller-scale real estate.

When investing in prime property, many will look for an investment which has a feeling of uniqueness – that is either completely suited to their particular lifestyle, or else utterly unlike anything else on the market. Because of this, and the substantive variation in the demands of individual buyers, placing an accurate valuation can be as much an art as a science. As such, bringing in experienced prime property valuers to assess the property will give the best opportunity at finding the true value, while consulting with specialist surveyors will help diminish the risk of unpleasant surprises.

Premium mortgage products can be difficult

From an outside perspective, it would be easy to assume that HNWIs looking to invest in a luxury property face very little issue accessing the necessary finance. In fact, wealthy individuals have to contend with a mire of mortgage complications and stringent thresholds as much as anyone else. This is because as a general rule, the wealthier a person is the more complicated their financial structures and income streams are. Accordingly, they require a tremendous amount of resource amongst lenders to extricate their arrangements and assess the soundness of their prospective borrowing.

The risk-aversion of many lenders takes the form of a tick-box methodology. Simply put, this means demonstrating an ability to meet a very specific set of criteria, or face rejection.

As a result, many HNWIs who would make for credible borrowers, are allowed to slip through the cracks. In research conducted by BML, nearly one in five (18%) HNWIs reported having a mortgage application turned down in the past decade. The issues accessing finance are borne out further in the length of time it can take for lenders to assess the soundness of a loan to a wealthy individual – the majority said they had to wait more than three months to learn if their application had been successful – the national average for a mortgage approval is only a small fraction of this.

Because of this, investors are advised to seek the assistance of specialist prime property brokers, who will have trusted contacts among lenders and will aid in the development of a more considered and strategic approach to financiers, ensuring the best chance of securing finance in a timely manner, and with reduced chance of facing rejection.

After a challenging period during the pandemic, prime property is on the rise again. Confidence is returning to the market, and investors of domestic and international stripes are again looking to carve out significant holdings in luxury property – over the coming year we are likely to see a release of long pent-up capital into the prime market. It will be critical that HNWIs partner wisely with the industry expertise necessary to avoid unforeseen pitfalls and help make the prime purchasing process as seamless as it can be.

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