Million pound plus mortgages face extinction

Million pound plus mortgage deals are becoming virtually extinct as lenders turn their backs on the upper end of the market, warns wealth manager and investment/mortgage planner HFM Columbus.

While a number of lenders currently offer loans of up to £1 million, even going one pound over this figure takes the vast majority of banks and building societies out of the market altogether.

“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 per cent loan to equity,” said HFM Columbus director Gary Festa.

“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. In addition, it increases its rates over the first million and again for every additional one,” he added.

At the ultra 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,” said 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: Nationwide’s cut off point is £500,000, as is the Chelsea Building Society for any scheme other than its standard variable rate.

“We have seen First Direct come back into the market place but it is notable that the maximum loan is £400,000 - and this I believe will become more and more the case as lenders seek to find ways to lend less money.”

The winners from the shrinking scenario on the High Street will be the private banks, reckons Festa.

“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 said.

“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,” said Festa.

But it is a potential minefield for individuals to negotiate, as private banks will almost certainly require new borrowers to set up ordinary lending accounts and such like, with all the usual fees that these arrangements attract.

“Whereas High Street banks have been doing their level best to cut brokers out of the picture in recent months as the credit crisis deepened, it is the opposite scenario with the privates, who welcome the conduit facility of a broker specializing in the higher end of the market,” added Festa.

HFM Columbus Group, the result of a joint venture between Weybridge, Surrey firm Hoyland Financial Management Llp and Tunbridge Wells based company Columbus Financial Advisers Ltd, is designed to deliver outstanding expertise in financial planning.

Aimed at the higher net worth end of the market, the firm offers in-depth solutions ranging from mortgages and investments to employee benefits, retirement and IHT planning, broadly encompassing the entire independent financial advisory spectrum.

For more information, visit hfmcolumbus.com.