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Advice opt-out income limit slashed from £1m to £300K

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The FSA has slashed the income limit of a high-net worth mortgage customer from £1m to £300,000 and confirmed that borrowers in this bracket will be able to opt-out of receiving advice.

In its December consultation paper, the regulator defined a HNW borrower as someone with a minimum annual net income of £1m and net assets of £3m. It proposed an advice opt-out, provision for interest-role up mortgages and a tailored approach to disclosure.

In last week’s final rules, the regulator states: “Our changed approach, in the light of the market feedback, recognises that there is a very small subset of genuinely wealthy customers, whose wealth is significantly above average.

“This level of wealth gives these customers specific advantages, in particular a considerably reduced risk of becoming homeless in the event that they experience financial difficulties.

“The HNW definition for mortgages will therefore exclude most customers and will ensure that the tailoring is targeted at the most wealthy.”

Lenders will still have to assess the affordability of HNW customers, obtain evidence of income and take account of future interest rate rises.

The FSA’s interest-only rules, which state lender must assess affordability for interest-only loans on a capital repayment basis unless there is a credible repayment vehicle in place, apply to HNW borrowers in their entirety. The FSA says they are flexible enough for the needs of all different types of mortgage customers.

Coreco director Andrew Montlake says: “I think the £300,000 level is quite realistic as the level where you would expect people to be financially aware enough to opt-out of advice. Ironically, high-net worth clients are more likely to want advice as their arrangements are more complex.”

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