Million pound mortgages on the verge of becoming extinct

Permalink: Million pound mortgages on the verge of becoming extinct
by Kay Murchie

Lenders are turning their backs on the higher end of the market warns wealth manager and investment mortgage planner HFM Columbus, meaning million pound mortgages are in decline.

However, private banks are stepping in and opportunities are arising for broker-arranged private deals.

Gary Festa of HFM Columbus said assuming you can find a lender prepared to arrange a loan in excess of £1 million, and we are talking about barely a handful, the fees become crippling, even for those with up to 50% loan to equity.

Barclays, traditionally a major player in this high net worth mortgage arena, imposes a huge £5,000 arrangement fee for a £1 million plus mortgage and adds an extra £5,000 to every extra million borrowed, comments Mr Festa.

Furthermore, it increases its rates over the first million and again for every additional one, he explained. At the top end of the market (loans of £5 million and over) buyers have just four lenders to choose from.

Lenders are no longer interested in this end of the market, which is odd as there was a time when larger loans were seen as a great source of business. After all, if you were looking to lend volumes what better way than to pick up these big mortgages, continued Mr Festa.

It comes down to one simple factor, the money is no longer available in the current climate, although some private banks will lend via brokers to appropriate individuals, he added.

The pattern we are seeing now is that lenders are increasingly capping their loan offerings with Nationwide’s cut off point being £500,000, as is the Chelsea Building Society for any scheme other than its standard variable rate, said Mr Festa.

Mr Festa believes the winners from the shrinking scenario on the High Street will be the private banks.

Private lenders rarely looked attractive in the past, but now many of them are looking very attractive against the limited retail offering. The difference of course is that rates and fees are individually negotiated, which is where mortgage broker expertise comes in, he explained.

Private banks are increasingly looking at doing deals and are considering offset mortgage arrangements for higher net worth clients with potentially big deposits and there are plenty of them still in the City, concluded Mr Festa.