Do you need a big mortgage?

Mortgaging and remortgaging for eye-watering sums is not just the province of high-flying politicians like Tony Blair and Tessa Jowell. And you don’t even need to purchase a £3.6 million home in London’s Connaught Square like Tony Blair to be considered high net worth any longer, after the property boom sky-rocketed property prices (although the rich continue to get richer).

Last year a report from independent market analyst Datamonitor revealed that the UK ‘high net worth’ population had grown by 12 per cent over the previous year, taking the number of wealthy individuals – those with more than £200,000 in liquid assets, or assets not tied into property or financial trusts, for example – to over 916,000, and this number is expected to rise over the next few years.

What’s changed?

However, many of these people still need mortgages – and sizeable ones at that. So a growing number of brokers and financial advisers are seeking these borrowers out, while lenders are pushing up the ceiling on amounts they are prepared to lend.

Among the niche brokers is Clegg Gifford Private Clients, which operates out of an office in London’s Canary Wharf. Its “Mobile Mortgages” service sends loan quotations to busy people by text, and will arrange for one of the firm’s ten brokers to visit clients in the surrounding city offices via one of the company’s distinctive bicycles. “It’s a bit of a gimmick and a play on words,” says senior mortgage manager Ian Gray, “but it shows, in a fun way, that we are dedicated to providing a specialist service for our high-net-worth clients.”

Others to enter the market recently are estate agents Hamptons and Cluttons, whose financial services arms join the well-established Savills Private Finance to assist their wealthy clients to finance their house purchases.

Mark Chilton, who founded Savills Private Finance in 1997 and now heads national broker Purely Mortgages, says: “When I started at Savills, we used to find mortgages of £200,000 worthy of remark, but now at Purely we don’t think twice about mortgages of half a million.”

Chilton says that as lenders see more applications for higher amounts, new technology and credit models have caused them to be far more relaxed about lending bigger amounts.

Which way now?

Clegg Gifford’s Gray, whose firm also operates the website www.largemortgageloans.co.uk, says: “It is most likely that a high-net-worth loan will come from one of the big lenders, such as HBoS, Abbey or C&G.”

He adds: “This is because smaller lenders do not like high-value borrowers because they represent too much risk in one person. Many smaller lenders will cap the amount they will lend to one person and may ask for a far bigger deposit for loans above a certain amount. The cut-off point for most mainstream lenders is £500,000, but can be as low as £250,000.”

One of the longest-established lenders for larger mortgages is Bank of Scotland, which is offering a two-year deal for loans of up to £750,000, tracking 0.51 percentage points below the Bank of England base rate, giving a current interest rate of 3.99 per cent. The loan is available on loan-to-value (LTV) of 90 per cent and the arrangement fee is £1,499. Loans above £750,000, and up to £2 million, attract a further fee of 0.25 per cent of the loan.

High-value borrowers may also end up with a relatively unknown lender, because many lenders get enough business without promoting themselves to consumers.

Specialist lender Heritable Bank offers up to £1.5 million on loans of 95 per cent loan-to-value, including those for self-certified borrowers with complex earning patterns. However, the lender also charges an extra 0.5 per cent fee on top of the usual 0.5 per cent fee for self-cert. There is an application fee of between £350 and £1,130 – fees by negotiation for properties valued at more than £1.5m – and an additional completion fee of £399.

The loan is offered on a variable, discounted or fixed-interest rate basis, or with a combination of interest rates for different parts of the loan. It can be on a repayment or interest-only basis, or a combination of both, and for a term of between five and 35 years.

Be advised

However, a little advice could serve you well to give you a bird’s eye view of your mortgage options.

Nigel Payne, managing director of The Mortgage Business, the specialist lender owned by HBoS, says: “Much of our business comes through mortgage advisers. They often charge a fee, but an independent financial adviser also dealing with other aspects of your finances may waive the mortgage advice fee.” It’s always worth negotiating because mortgage lenders pay advisers for arranging each loan as well.

If you favour going for a fixed fee, mortgage adviser Bradford & Bingley could be the answer. Duncan Pownall, B&B’s mortgage development manager, says: “We don’t treat larger loans any differently from our mainstream lending, though you might need a higher loan-to-value for a large advance. Where we win out is that we have a flat fee of £199, compared with a percentage rate used by many other brokers, so for larger loans this would give you a lower total cost when you work out the cost of the loan, including the fees.”

Although, don’t be afraid of paying higher fees to a broker either. They often have access to exclusive lower-rate mortgage deals and could save you money in the long run.

And with larger loans, the rate really counts because you are borrowing more, so it could be worth paying higher fees for a lower mortgage rate.

Drew Wotherspoon, spokesman for well-known mortgage adviser John Charcol, which is also able to provide a tailored service for clients seeking a bigger loan, says the company has recently been offering clients a 3.99 per cent fixed rate for a minimum loan of £500,000. “This compares very well with rates for smaller loans,” he says.

“Because we are a large broker, we have no set rules on fees, which can be as low as 0.25 per cent. Although our stated charge is as much as a 1 per cent fee, our average fee is just 0.35 per cent.”

It goes without saying that brokers will help with the administration side of applying for a loan. This can be useful for high-net-worth borrowers, who are more than likely to go the “self-certification” route – making a declaration of their earnings rather than providing payslips and an employer’s reference.

Many people looking for a very large mortgage will also take the self-cert route, because they have different sources of income, such as dividends, bonuses and rentals, and it is simpler for them to self-certify.

Interest versus repayment

Borrowers looking for larger amounts may also be more inclined to take out an interest-only loan, because they will have the means to pay off the capital from other sources, such as work bonuses or by selling other investments.

Purely’s Chilton says: “Soaring house prices have meant that more lenders are using measures of ‘affordability’ rather than traditional lending measures. Prices have been powered by an enhanced ability to pay.

“ Lenders have recognised this, and will lend aggressively to young professionals with good promotion prospects, as well as those already on high income levels.”