Million pound mortgages: not just for bankers

As City bonus payouts get under way, and the spring house hunting season approaches, will these big hitters and others needing a larger than average home loan be able to raise the finance they need?  

Not just for bankers

You don’t have to be an investment banker to need a £1 million mortgage, with a fairly ordinary family house in Wandsworth’s ‘nappy valley’ now costing well over £1 million and possibly £2 million or more. 

The high street lenders pulled out of the £1 million plus mortgage market soon after the credit crunch hit and most currently have a maximum loan of £500,000.  But the market for £500,000 plus loans is actually improving according to mortgage broker Andrew Montlake of Coreco.  ‘We expect to see lenders coming back into this market over the next six months and there are even now some very good deals around.’ 

‘The private banks have taken up the slack.  For a 60% loan to value you can borrow at very good rates – Bank Base Rate plus 1.99% on a tracker deal, 2.99% for a two-year fix or 4.5% for a five-year fix.  Some of the private banks will lend up to 75% or even 85% for the right client,’ Montlake confirms.  ‘Up to £500,000 there is not much of a problem but over £1 million plus it is still tight.’

Fees can be an issue but even here the larger than average loan doesn’t seem to attract higher costs.   ‘Some of the private banks are offering almost high street deals with a flat fee of £999.  Typically the fees are around 0.5% up to 1.5%, depending on the complexity of the deal,’ says Montlake.  He says that some private banks look at the borrower’s overall financial situation including other assets such as a portfolio of shares and are prepared to take some of this into account. 

Lack of stock

‘We are starting to see an increase in enquiries from buyers but as always it is finding the right property which is the problem.  People just can’t find what they want.  There is a shortage of stock,’ says Montlake.

Research from Investec Private Bank, one of the lenders in the larger than average mortgage market, reveals a similar tale.  According to Investec, competition for properties worth £1 million or more has fallen over the last two years – largely due to a shortage of suitable homes and the difficulty of raising finance.   Interviews with estate agents, developers and mortgage brokers shows that two years ago there were typically eight buyers competing for each property worth £1 million or more, compared with just five today.

The top three obstacles are a lack of stock, fear of a ‘double dip’ recession and the impact this has on buyer confidence levels and a lack of finance.  Some 45% of those interviewed said availability of credit is either ‘poor’ or ‘very poor’. 

What’s on offer

Investec recently launched a new product targeted at high net worth professionals who are paid bonuses.  The mortgage is tailored to the borrower’s needs and takes overall income and wealth into account rather than just the value of an individual’s property and their regular monthly income.  Minimum loan is £1 million and the borrower must have sustainable earnings in excess of £300,000 a year and a net worth of £3 million or more.