Promising News… Exclusions for high net worth clients from LTI Cap?

This week the British Banker’s Association (BBA) has urged the Bank of England to make concessions for high net worth clients and exclude them from its new LTI Cap.

Whilst the BBA do “broadly support” the limit on high-LTI lending, it does believe that new rules could negatively impact the growth of private banks. This is because private banks typically serve high net worth clients whose ability to repay debts is based on a combination of assets and income. This means that for high net worth clientele their affordability is not necessarily calculable using this formula as much of their income is derived from both assets and income, as opposed to “just” income.

For Enness’ Private Clients this is certainly good news as we were concerned about the effect that such legislation would have for our high net worth clientele’s banking relationships. Our clients are more often than not paid using complex income structures and have fairly intricate financial portfolios which aren’t necessarily black and white.

An LTI cap isn’t always going to be the best fit for these clients as they borrow differently from the majority of people. Furthermore, the cap, as it currently stands would in all likelihood penalise private banks and stifle competition.

The BBA’s move aims to encourage competition and movement in the banking industry rather than encourage a measure which would unfairly penalise private banks.

The new regulations were first recommended at the Financial Policy Committee’s June meeting and the Building Societies Association last month also urged policymakers not to make the cap a permanent fixture in the mortgage market – suggesting that it would stifle growth, particularly in the high net worth mortgage sector.

The Bank of England will further require lenders to continue “stress-testing” borrowers against a 3 percent rise in the prevailing interest rate at the point of taking out the loan.