The FSA has slashed the income limit of a high-net worth mortgage customer from £1m to £300,000 and formerly recognised that borrowers in this bracket will be able to opt-out of receiving advice.
In its consultation paper last year the regulator defined a HNW borrower with a minimum annual net income of £1m and net assets of £3m, and also proposed the advice opt-out, provision for interest-role up mortgages and a tailored approach to disclosure.
Its definition of a HNW client is different to the one the regulator put forward in its consultation paper on unregulated collective investment schemes in August this year. In that paper it defined HNW as anyone with net income of £100,000 and net assets of at least £250,000, but it is choosing to apply a different definition of HNW in the mortgage market.
In today’s final rules it 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 affordability customers, obtain evidence of income when basing their affordability assessments and take account of future interest rate rises.
And the FSA’s interest-only rules continue to apply in their entirety, as the FSA believes that the interest-only rules are flexible enough to be adapted to the needs of different types of customers, including HNW mortgage customers.