Forget Jeremy Corbyn’s election and the queen becoming our longest-reigning monarch: the rise of the million pound mortgage is the big news of 2015. If it comes as a surprise that 1 in 14 borrowers now has a mortgage of over £500,000, the spike in mortgages over a million in the last year is even more eye-catching. Lenders and borrowers alike seem to be more willing to issue and take out jumbo mortgages, and it is a trend worth exploring.
Figures from RBS, Nationwide and many private banks suggest that overall the number of million pound mortgages granted by major lenders has risen by almost a fifth. NatWest says it issued 233 mortgages of over £1m in 2014, and so far in 2015 has granted 207. The bank expects lending in this bracket to be up 18% by the end of the year.
Islay Robinson, CEO of Enness Private Clients, says that lenders keen to boost their lending levels are becoming comfortable again: ‘We have seen many returning to the £1m-£2m lending market.’ In a sector dominated by private banks in recent years, the return of high street lenders has added another level of competition.
The million pound mortgage also makes good financial sense for borrowers at the moment. With interest rates at an all-time low, jumbo mortgages have become more affordable for high earners, who tend to be offered interest-only deals. Currently repayments on a million pound loan start at around £5,000 a month. Although this would be slightly affected by any rise in the base rate, while interest rates are so low many are choosing to borrow against their homes and use the cash to buy alternative assets.
The top end of the mortgage market is split roughly between the international elite and the domestic British buyers, who sit in the £1m to £3m category. Although there is little joy in the elite market at the moment, the latter bracket is currently particularly lucrative and business is booming.
Typically, those taking out million pound mortgages tend to work in financial services, hedge funds, the legal profession or private equity. We have also seen a number of professional sportsmen dipping their toes into the market.
The vast majority of these mortgages – nearly 80% – are, unsurprisingly, being issued in London. There were 4,529 sales of properties over £1m in London in the first half of 2014, compared to just 7 in Wales. Nationwide says its £1m mortgage hotspot is Richmond upon Thames.
That said, even one million might not get you far in the face of London’s often prohibitive property prices. We have seen a ‘cashing out’ trend among clients, where money raised against London properties is then invested in much larger but less pricey properties in the country. With areas outside of London providing comparatively good value for money, many are choosing to explore this route.
There is a constant trickle of new options in this sector and it is important to assess the whole market in order to receive the best terms. To learn more, please don’t hesitate to get in touch for a consultation.