9 October 2015, The Times
A million pounds may not seem to go very far in the property market these days, but if you look in the right places you can make it stretch to a lovely family home- particularly if you are happy to leave the capital in your wake.
1.) There is intense competition for homes priced between £1 million and £2 million in London, according to Camilla Dell, the managing partner of the Black Brick buying agency. She says: “The market is busy with domestic owner-occupiers who have been frustrated at the difficulty in finding, and successfully bidding on, family homes in the capital. Additionally, the uncertainty in global stock markets is encouraging investors to move assets into London property. We are also representing cash buyers and those aiming to ‘future buy’ property for their children.”
2.) Robin Chatwin, of Savills, says that the farther you move from London, the more you can get for £1 million. However, this does not mean that buyers become less fussy when offered a spacious property outside London. Quite the reverse. It seems that people are more likely to shrug their shoulders when told what a property in the capital will cost. Chatwin comments: “The closer you are to London, the more vibrant the market becomes at this level as buyers largely accept the premiums you pay to be in close proximity to the capital.”
3.) The key reason for the demand for homes priced below £2 million is stamp duty. A £1 million home now attracts a stamp duty bill of £43,750. The bill for a £2 million home is £153,750; the reason for the increase is the 12 per cent rate payable on the portion of the value between £1.5 million and £2 million. A rate of 10 per cent applies to the portion between £925,000 and £1.5 million.
4.) There are more than over 4,000 properties on the market around the £1 million mark, according to Rightmove. During the past five years there has been an 80 per cent rise in homes available at this price. In the past 12 months, growth has been recorded at 18 per cent. The largest number of £1 million properties are in London, unsurprisingly.
5.) With ultra-low interest rates, £1 million mortgages have become cheaper for high earners, who still need to meet strict affordability criteria. Wealthier borrowers might also be more likely to get an interest-only mortgage approved. It can help those with, say, hefty school fees to pay which means they need to manage cash flow in the short term, but longer term will have more disposable income with which to clear the mortgage.
6.) Aaron Strutt at Trinity Financial, a mortgage broker, says: “It wasn’t that long ago the high-street lenders pretty much stopped offering £1 million-plus mortgages and if you wanted a larger loan you needed to speak to one of the private banks. But times have changed and the high street lenders are actively competing with the private banks to target wealthier borrowers like bankers, footballers and entrepreneurs. They are tempting them in with some incredibly cheap rates, low arrangement fees and the promise of faster mortgage offers.”
7.) Strutt says that more high street lenders are setting up departments to manage larger mortgage applications and they are giving their underwriters more flexibility to get the deals through. “Lenders are also pushing to supply £1 million-plus mortgages because they think it is easier to provide one larger loan rather than four or five smaller ones,” he says. “The compliance is roughly the same, there is less risk and the lenders spend less time processing applications.” Banks including Barclays, NatWest, Santander, Metro Bank, Coutts and Halifax offer £1 million-plus mortgages.
8.) Brokers report that Barclays has got some of the most competitive rates in the market and its cheapest deals are often available up to £3 million, while NatWest has a specialist large-loan team. However, Virgin Money has a fairly strict policy of lending up to £1 million. If you are looking for a £1 million-plus mortgage, there are cheap loans available. HSBC has a 2.19 per cent five-year fixed rate for mortgages up to £3 million. There is also a three-year tracker rate at 1.65 per cent from Woolwich, but there is a £1,999 arrangement fee and borrowers will need a 35 per cent deposit to qualify. As the mortgage doesn’t have early repayment charges, borrowers can switch to a fixed deal when the base rate finally increases.
9.) The process for taking out a large mortgage is similar to that for a smaller mortgage, with the lender having to assess overall affordability. However, for £1 million-plus mortgages this process can sometimes take longer. Adrian Anderson, director of mortgage broker Anderson Harris, says: “Some of the very high earners may have very high outgoings. For example, higher earners with families may have large private school fees, nannies and housekeepers, as well as extravagant annual family holidays to Saint Tropez in the summer and Verbier in the winter. These all have to be factored into affordability.”
10.) Yet in some scenarios the affordability of a £1 million mortgage can be more straightforward. Harris adds: “One of my City clients borrowed in excess of £1 million. His income multiple was circa two times the mortgage and he worked 12 hours a day, so had no time to spend any of his vast income.” Harris highlights that many people applying for £1 million-plus mortgages have the ability to purchase the property outright but are choosing to borrow to take advantage of low interest rates. He says: “Why use your own money when you can use someone else’s — and at such cheap rates?”
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