Invest / 28 December 2018, 3:00pm / Edward Robinson
Even the children of the well-off need financial help breaking into London’s pricey property market.
That was the bet Scottish finance veterans Ray Entwistle and Graeme Hartop made in 2015 when they started the private bank Hampden & Co.
They saw young people from well-heeled families, especially those starting their first jobs, struggling to score their first homes. (Despite the recent slowdown and Brexit-related uncertainty, London properties are still valued at 482,000 pounds ($610,000) on average.)
So they decided to start mortgage offerings to let the older generation help the younger get a leg up. Hampden’s favorite is a one-time staple that had fallen out of favor: guarantor mortgages, which let one borrower backstop the credit of another.
Last year, for example, a fashion designer named Annoushka Giltsoff wanted to buy a house in Brook Green, a leafy neighborhood in West London. She didn’t have enough ongoing income to support a loan. But Hampden banked her older sister Katushka, a headhunter, and was willing to accept her guarantee and write the mortgage for Annoushka.
Hampden added a twist to this type of loan by permitting, say, a parent to pay down a portion of the loan alongside a son or daughter. Hampden fashions interest-only loans that enable families to draw on different sources of income to refinance properties. The Edinburgh-based bank is also using its balance sheet to fund both multi-property and bridging loans to let clients sell real estate before they buy.
By being so flexible, Hampden hopes to challenge big lenders that may not be nimble enough to adapt to the peculiar needs of affluent families. High-net-worth individuals in the U.K. are increasingly starting entrepreneurial and charitable enterprises that complicate their finances, especially when real estate is thrown into the mix.
“The property market is creating challenging conditions for many, and the way that people make and hold money is becoming more diverse,” said Hartop, Hampden’s chief executive officer, in the firm’s outpost in London’s tony Mayfair district.
The bank started with 62 million pounds from financial-services firms Hampden Holdings and XL Group Ltd., as well as private investors. In its bid to elbow its way into Britain’s centuries-old private-banking business, Hampden & Co. opted to cater to so-called mass-affluent clients, many of whom are professionals from the legal and financial worlds. The average customer has deposits at the firm of about 500,000 pounds and borrows 500,000 pounds to 1 million pounds.
It’s an unusual entrant in the U.K.’s tech-heavy financial startup scene. Hampden, which is only now rolling out a phone app, is decidedly old-school, staying away from the artificial-intelligence programs that have driven the growth among robo-advisers.
Moreover, the firm has opted not to provide any investing services. For years, lenders such as Barclays Plc and Royal Bank of Scotland Group Plc have paired private banking with fee-rich wealth management for their well-heeled clients. The only other independent British private bank that’s hived off its asset management unit is C. Hoare & Co., which sold its business to Cazenove Capital in 2016.
Hampden might burn through a lot of cash before it breaks even. The bank has collected 200 million pounds in deposits, and last year it lost 6.4 million pounds. Hartop declined to estimate when the firm will push into the black.
“A client doesn’t have to be profitable from day 1,” he said. “We just want to see a way to get our foot in the door and build that relationship.”
He’s wagering some flexible mortgage lending should help, too.