Three ways to maximise your borrowing potential

IT’S bonus season, and some high-earning City workers are likely to take advantage of the promise of rising top-end prices to snap up exclusive pads – provided they can get the necessary finance.

The Centre for Economics and Business Research (CEBR) estimated earlier this year that bonuses would amount to £7bn. The final figure is expected to be lower as many banks increase salaries rather than bonuses. Nevertheless, three-quarters of City workers anticipate a higher bonus than last year, according to Investec.

The resurgence of City bonuses coupled with a growing band of international property buyers are keeping the London property market booming, in spite of a wider UK market slowdown.

Britain’s property market recovery has run out of steam lately, with house prices falling 1.3 per cent in December – the fastest annual rate in more than a year. They rose 0.8 per cent in January, but on an annual basis, were still 2.4 per cent lower, as measured by the average of the latest three months against a year earlier, according to mortgage lender Halifax.

However, prices in exclusive areas of London have bottomed out, rising by 3.3 per cent since November, according to estate agent Knight Frank.

Tim Murphy, chief executive of IP Global, the property investment firm, expects prime London property prices to rise by 5 per cent this year, 6 per cent next and 8 per cent in 2013. Over the next five years, they will surge by 33 per cent, he says.

“Grade A property should outperform the average by 5 per cent over next five years, though mortgage funding will still be difficult to obtain,” he says.

Those who aren’t cash buyers can find it difficult to get a mortgage, but there are ways that City workers can maximise their borrowing potential:

KEEP RECORDS
It pays to be organised. Banks require more documentation as evidence of your income than in the past, especially if it’s not of a regular nature, or perhaps if your bonus is paid in equity rather than cash.

Lenders typically insist on two years’ evidence of income from the self-employed, for example, and sometimes three.

David Hollingworth at London & Country Mortgages says: “It makes sense to anticipate a lender putting your finances under greater scrutiny than before.

“Those with a heavy accent on bonus income will find that mainstream lenders will generally take only a proportion of that income into account when assessing how much they might lend, so pull together as much information as possible to demonstrate a good track record of those bonus payments.”

Having things like tax returns, tax calculations (such as P60 and SA302 forms), your bank statements and payslips to hand will speed up the process and make sure you don’t make wasted applications. Be upfront, too, about any unusual aspects of your income.

USE A BROKER
Some lenders are non-starters for those who want their bonus payments to be taken into account when it comes to how much they can borrow; others are more lenient. Using an independent broker will help you separate the wheat from the chaff.

“Brokers have access to underwriters with whom they can discuss the specifics of the case to ensure there’s some hope of getting the right result and gain a clear picture of what information the lender will need,” says Hollingworth.

Brokers also have access to lenders beyond the traditional, high street names.

GO PRIVATE
Private banks are more accustomed to dealing with high-earning City workers and their atypical income stream.

Melanie Bien, director of broker Private Finance, says: “The danger of walking into your nearest high-street bank for a mortgage is that they may not lend as much as you need: many won’t go above £500,000.

“They also tend to be inflexible, insisting on repayment rather than interest-only, or they will not take your entire bonus into account when deciding how much you can borrow. Private banks access applicants on a case-by-case basis.”

Investec Specialist Private Bank has recently launched a £1m-plus mortgage aimed at high-net-worth individuals who aren’t paid along conventional lines, but accrue irregular income, such as lump sum bonuses.

The custom-made mortgage takes overall income and wealth into account, rather than just the value of the property and your regular monthly income. You must have “sustainable earnings” of more than £300,000 a year. If you’re a couple, this criterion must be met by the primary applicant, so you can’t add up both parties’ income. You must also have an “established balance sheet” of more than £3m.

“Private banks lend on the basis of the client rather than the property, so will welcome you if you are the ‘right’ sort of client, with whom they can develop a relationship that goes beyond a mortgage,” adds Bien.

Rates are bespoke, but they are often more competitive than those from high-street lenders. However, the trade off might be a requirement to move some of your banking or investment holdings to the private bank to qualify.