The number of £1m-plus mortgages granted by lenders is growing, as property prices continue to rise. High-street lenders are more interested at lending at this level than they have been in recent years, although the bulk of loans comes from the private banks.
Most of the high value properties tend to be in London. However, we have seen a shift in clients seeking to cash out of London and purchase much larger properties in the country. Values in London have grown a lot more than values outside of London over the past five years. A large country house can sometimes cost less than £500 per sq ft, whereas a house in Chelsea can cost £2,000 per sq ft, hence large houses outside of London may look good value comparatively. Some clients have explored selling their London family home and purchasing a large country property and a small flat in town.
The process for taking out a large mortgage is similar to that for a smaller loan with the lender having to assess overall affordability. However, for £1m-plus mortgages this process can sometimes take longer.
This is because some very high earners often also have very high outgoings. For example, higher earners with families may have hefty private school fees, nannies and house keepers, as well as extravagant annual family holidays to St Tropez in the summer and Verbier in the winter. These all have to be factored into affordability.
However, in some scenarios the affordability for a £1m mortgage can be more straightforward. One of my City clients borrowed in excess of £1m, his income multiple was circa two times the mortgage and he worked 12 hours a day, so had no time to spend any of his vast income.
Some high-street banks have a maximum loan size of £1m or £2m. Above this level the private banks start to get interested.
Many people applying for £1m-plus mortgages have the ability to purchase the property outright but are choosing to borrow to take advantage of low interest rates. Why use your own money when you can use someone else’s – and at such cheap rates?