Boom in funding options for large loans
Growth in Prime property values is leading to increased demand from borrowers and growing interest from lenders in the £500,000-plus mortgage market.
Prime Central London prices have risen by 34 per cent since March 2009, according to Knight Frank. Far from a market in the doldrums, prices are at record highs, some 2 per cent higher than the previous peak in March 2008. Indeed, rival Savills recently significantly revised its forecast upwards from -1 per cent to growth of 8 per cent for the year.
Foreign buyers are largely fuelling this growth in prime central London values, making the most of the pound’s weakness, with many also looking for a safe haven for their money as a result of political turmoil in other countries. Although many of these buyers pay with cash, there are others who see the advantage of gearing up and taking advantage of extremely low interest rates. They may not want to bring all their money into the UK, particularly if they still have links to other countries. It is these wealthier borrowers that the private banks are keen to attract, while high-street lenders are increasingly trying to get in on the act.
High-street lenders are markedly upping their game, mostly appealing to the ‘mass affluent’ – those borrowing between £500,000 and £2m. Research from Private Finance shows that while several high-street lenders have a maximum loan size of around £2m, one will go up to £7.5m in exceptional circumstances for the right client and property.
But it’s not just maximum loan size which is an issue. High-street lenders tend to struggle with complicated income streams, which are often commonplace among borrowers buying more expensive property, including bonuses, performance-related pay, retained profits in a business, and offshore income. Our research suggests that while high-street lenders are keen to grow market share among the mass affluent, their offering is hampered by restrictions.
Interest-only borrowing is particularly problematic; again, highly popular among borrowers at the top end but loan-to-values are restricted with many high-street lenders requiring evidence of a repayment vehicle, and not accepting an inheritance or the sale of the property as a legitimate alternative.
High-street lenders also tend to have problems with short-lease properties – often a feature of the central London market. Some will not lend if the lease is shorter than 70 years, although others will reduce this to a maximum of 30 years and one lender will do 10 years on a repayment basis.
As the Prime market continues to thrive, funding – both for development purposes and the finished article – will continue to be in demand. But it’s about knowing where to go as lenders’ offerings are a mixed bag. There really is no substitute for specialist advice when looking for large mortgage loans.