Jeffrey Feinman, New York accountant to the super-rich, in February arranged an unusual mortgage for a client buying a home abroad. Exceptionally for today’s mortgage market, the loan covered 100 per cent of the value of the home. It also came fixed at 3.25 per cent, comfortably better than the 3.9 per cent average for a 30-year fixed-rate mortgage in the US at the time. But the really striking thing was its size: $110mn.
While the world’s richest people could buy even the priciest homes for cash, the majority will — just like the rest of us — use a mortgage. That is where the similarities end, however. Home financing for the wealthy draws on an international web of advisers, including private bankers, accountants and lawyers. In this world, a high-value home is just another piece of collateral, enabling borrowing that frees up other cash to be sent round the world in pursuit of the highest investment return and lowest tax rate.
It is an approach they are still taking — but now much more cautiously — in a world of rising interest rates where the prospect of an economic downturn looms. Feinman says that, in February the typical mortgage he arranged for clients had a loan-to-value (LTV) ratio of about 90 per cent. Today, it is between 50 and 60 per cent. “This is partly about lending rates but also about the stock market outlook. Plus, banks’ lending appetites have reduced and there is drastically more scrutiny on borrowers,” he says.