Superloans are no big deal

There was a time when a million-pound mortgage was extraordinary. Not any more, says Stephen Pritchard

To the average homeowner, the very upper end of the housing market can appear to be a parallel universe, with properties changing hands for huge sums and generating profits that are almost as lavish as the décor and fittings. When Bernie Ecclestone, the Formula One magnate, bought a Kensington mansion for his wife, he handed over a cool £50 million. Arranging a loan for a multi-million-pound property is the stuff of dreams for building society or bank managers. And although the likes of Mr Ecclestone would hardly need to call on the high street for financial assistance, the number of million-pound properties and mortgages is on the increase.

To the average homeowner, the very upper end of the housing market can appear to be a parallel universe, with properties changing hands for huge sums and generating profits that are almost as lavish as the décor and fittings. When Bernie Ecclestone, the Formula One magnate, bought a Kensington mansion for his wife, he handed over a cool £50 million. Arranging a loan for a multi-million-pound property is the stuff of dreams for building society or bank managers. And although the likes of Mr Ecclestone would hardly need to call on the high street for financial assistance, the number of million-pound properties and mortgages is on the increase.

A survey carried out last year by the Halifax found that the market for £1m-plus properties is no longer confined to London and the South-East: an increasing number of provincial homes have now passed through the million-pound barrier.

As a result, the lender has changed its mortgage rules to make its mainstream deals available for anyone borrowing up to £2m. Previously, someone wanting a loan over £1m would have had to borrow from a special division of the bank, with less attractive interest rates. Now, the Halifax, along with several other lenders, will arrange loans of up to £5m. Some, such as NatWest, have no official upper limit on loans.

Higher property prices are one reason why more lenders are reviewing their policies on larger loans. Until recently, borrowers looking for a mortgage of £500,000 or more would often have to pay the lender's standard variable rate. And there are plenty of lenders who restrict their best deals to loans under £300,000.

A large loan need not mean a poor deal, however. Through brokers London & Country, NatWest is offering a large-loan mortgage on a tracker basis, charging 0.2 per cent above the Bank of England's base rate for two years, with a minimum loan of £400,000 and a minimum loan-to-value of 85 per cent.

City-based broker Charles Cameron & Associates is offering a mortgage for customers borrowing £500,000 or more at 4.83 per cent. The loan is pegged to the City's three-month Libor (London inter-bank) lending rate. Other lenders, such as Abbey, Nationwide and Cheltenham and Gloucester are also active in the large loans market. But although interest rates are becoming more competitive for larger mortgages, home buyers will find that there are still other restrictions. Critically, lenders offering larger-than-average mortgages will expect buyers to put down a substantial deposit.

NatWest is relatively unusual in offering mortgages at 85 per cent of the property's value on large sums. According to David Hollingworth, at London & Country, on a £1m-plus loan a more typical loan-to-value would be 65 per cent.

"Large mortgages are certainly not just for stately homes, and would certainly cover central London property today," he says. "But we are talking about buyers who probably have a large deposit and don't need a large loan-to-value." Buyers of expensive homes will often have income from investments or directorships in addition to a salary, or plan to repay substantial amounts of their mortgages from investments reaching maturity. They may well also see property as an important part of their overall investment portfolio.

This is one reason why mortgage lenders are setting up dedicated teams or divisions to deal with applicants for larger loans. Proving income is unlikely to be as simple as producing some salary slips, but at the same time buyers at the upper end of the market will tend to be financially literate and expect good service. Accord, a division of Yorkshire Building Society that lends through brokers, has a mortgage designed for directors of the largest quoted companies; it promises to turn around loans in just five days. At London & Country, Mr Hollingworth says that timing is an important factor for higher-end borrowers. The market for unique, expensive homes can be very competitive, and buyers will not want to spend time chasing lenders' paperwork.

The Halifax handles loans of between £2m and £5m through its premier unit. "It is still very unusual to get a property sale of over £5m anywhere in the UK," says spokesman Paul Fincham. "You would be talking about substantial properties in the most affluent parts of London."

The very affluent might not even need to borrow money in order to buy a home, but it can pay them to do so. Taking out a mortgage frees up money for other ventures or investments, and the financially astute will bank on earning a high enough return to cover their interest bills.

At the upper end of the market, borrowers are also more likely to take out interest-only loans, suggesting they have other income to pay off their mortgages. If they plan to borrow more than £5m, they are likely to pass by high-street lenders in favour of private banks, where discretion is at least as important as the interest rate.