Houses of the Unholy

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There is good lead piece in this week's FT Weekend, House & Home section, which clarified an aspect of super-wealth I'd not registered before. Imagine if you will, that you are a self-employed jack of all trades tradesperson who turns their hand to just about anything and everything; taking on one-off jobs or short-term contracts without any single formal business structure. Throw in an ad hoc accounting system with sporadic and somewhat opaque book-keeping, minimal tax payments and a general air of inaccessibility, your money held in various current and savings accounts and credit spread across a dozen cards.

Now imagine you want to buy a property, maybe to live in, maybe to rent or maybe to just sit on and flip as the price rises. You go to a bank or building society and ask for a mortgage; preferably deposit-free and below normal interest rates. Oh, and you just haven't quite gotten around to this years accounts and you've been on holiday for the last three months. You're not directly employed, you haven't a company, are not in a partnership and you're not really a sole trader.

When you scrape yourself off the pavement after being summarily dismissed from the building, you wonder what you did wrong. After all, this is exactly the modus operandi of the Über-rich, who are afforded the privilege of circumventing the kinds of restrictions and processes that mere mortals are subject to. Turns out that someone with several thousand million quid to hand doesn't have to actually pay up front for a property they could easily afford out of what would be pocket-change for them: after all, what's a few million?

High Street banks will typically not lend more than £10M against a property purchase, and then it will be subject to the normal deposit ratio and interest rates. Where the high-net-worth go is to specialists who can act as intermediaries with less picky lenders who will trust the broker's word that the HNW individual has indeed the funds to more than enough cover the loan. After all, their finances are usually clouded in mystery, and their wealth hidden in multiple tax havens and banks where no audit can follow: so to a normal bank, these people would appear like the hypothetical black-market trader I asked you to imagine being.

These HNWI's not only do not have to fork out a deposit or pay outright for what they could easily afford anyway, they get the kind of low interest that ordinary folks with vanishingly-minuscule-by-comparison resources can only dream about. This affords the HNWI the opportunity to own multiple high-worth capital assets in the form of premium property with minimal outlay, whilst leaving them the principal sum they would have spent to use elsewhere to create more money: all the while the value of the bricks-and-mortar assets are increasing at a rate greater than the interest they're paying on the loans - nice work if you can get it, fellas! All of this is done on the nod and by word of mouth in a world to which 99.99% of the global population has absolutely no access to: The Club.

Addendum - if you read this post mid-edit [I must learn to not live-edit!] I apologise for some of the semantic inconsistencies...

Comments

  1. Joe Stoner8 November 2021 at 17:43

    Titus had many failings but being a HNWI was not the worst! Mervyn Peak's imagination could hardly have conjured up our current "government"!!

    ReplyDelete

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