Traditionally private banks have been perceived as providing banking services for high net worth clients, akin to private estates, with large and complex mortgage requirements. However, while the historic values of private banks have not changed, the type of rural business these banks consider is changing and they will appeal to more farming clients.
At R&BS Ltd, we have been working with private banks over the past few years to create bespoke and tailored solutions for our rural entrepreneurial clients with a good asset base. This gives our clients more choice compared to the strict mortgage product criteria of high street banks.
Private banks are changing lending criteria to appeal to more clients
One private bank has over 200 high-net worth rural and farming estates on their loan book. Following our discussions with this private bank and several other private lenders, they have dropped their minimum loan requirements. They will consider clients with borrowing requirements of over £250,000, with a minimum asset base of £2 million together with other properties or investments within the family. This compares to some around £2 to £5 minimum lending some years ago.
Another image of private banks has been the request to place "assets under management" – that is for the clients to place all their investments as well as lending with the bank. This has historically been the case, however as regulation has moved forward, private banks have adapted too. Indeed, some have sold off their investment arms, whilst others keep both divisions separate from one another. This now means that R&BS can get their clients mortgages and current account facilities with a private bank but without committing clients’ investment portfolios to the same organisation.
As high street bank lending continues to be strictly regulated and lending policies and guidelines are formed to fit certain, often tight, criteria, private banks and lenders have become more competitive and offer rural businesses more flexibility.
We have seen examples where a private bank has applied waivers to criteria on serviceability in the knowledge the client has funds that can be sold, or the lending includes interest-only payments for a defined period.
Private banks are becoming more competitive for high net worth clients
Aligned with their changing lending criteria, private banks are also becoming more competitive for their core business of service and lending to higher net worth clients. Private banks are making concerted efforts to build relationships with high net worth clients, which will leave them with lifelong and sustainable business. R&BS have seen these relationships built on more competitive interest rates recently, which hasn't always been the case.
Of course, high street banks still have their place with large complicated commercial farming propositions that involve a lot of technology and other banking facilities such as invoice discounting, lease and hire purchase facilities. High street banks have distinct departments dealing with rural corporate clients as a result.
Which rural and farming businesses would private banking suit?
The changing nature of private banks is offering competition, good interest rates and more choice to our farming clients. R&BS are placing more business with private lenders as a result.
If you are a larger family farm with borrowing over £250,000 or more, with farmland at the core to your business and a diverse source of assets, you might have more options than a high street bank. Likewise, if service levels and old-fashioned banking is relevant and interest rates are not the only importance, then a private banking relationship could be more suitable to your circumstances.