Million pound mortgages are cheaper than ever

Getting a mortgage for more than £1m is cheaper than ever, as banks cut fees and tempt wealthy buyers with interest rates below 1 per cent.

Following the Bank of England’s quarter-point cut in base rates in August, competition between high street banks in the lucrative “large loan” market has intensified.

Bigger mortgages are typically charged at higher interest rates than standard home loans, but the difference has narrowed in recent months as banks jostle to sign up borrowers for the supersized loans than will more easily help them meet their annual lending targets. The definition of a large loan varies according to lender, with some setting the floor at £500,000 and others at £1m.

“Lenders are really pushing for large loans at the moment. They’re constantly undercutting each other,” said Aaron Strutt, product manager at broker Trinity Financial.

Those looking to borrow up to £5m could obtain an interest rate under 1 per cent in the best deals for a two-year fix — the lowest large loan rates brokers said they had ever seen.

Yorkshire building society on Friday announced a two-year discounted variable mortgage at 0.98 per cent on home loans up to £5m. It carries a fee of £1,495 on loans up to a maximum 65 per cent of the property’s value.

HSBC offers a two-year fixed-rate deal at 1.09 per cent for those with a deposit of at least 40 per cent, and will lend up to £5m. Its five-year fixed rate deal runs at 1.99 per cent.

This month, Barclays reduced its two-year fixed rate from 1.85 per cent to 1.49 per cent for mortgages between £1m and £3m. In promoting its deals to brokers, the bank said £38bn of loans would be ripe for remortgaging in the last three months of 2016.

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Last month, Santander cut the rate on its five-year fix by half a percentage point to 2.09 per cent for mortgages between £250,000 and £3m. Coutts, the private bank, has recently lowered its rates by 0.2 percentage points on loans over £5m.

Other incentives are also being offered to entice well-heeled borrowers. Barclays
are offering free valuations to anyone buying a home
worth up to £2m and TSB
has removed mortgage application fees from its mortgage range, including large loans.

Brokers said most wealthy buyers were still keenest on the best rates offered by short-term fixes, rather than the five-year deals that gave certainty over outgoings in the medium term. Mr Strutt said borrowers did not believe the Bank of England would raise rates at a time when the economy remained vulnerable to the effects of Brexit and therefore were still opting to follow the best price.

“The cheap two-year money is incredibly popular. If you’re borrowing £2m and there’s likely to be a half or 1 per cent gap between the cheapest two- and five-year fixed rates, then it really does add up on a large loan,” he said.

Matthew Hillyer, partner at broker Largemortgageloans. com, said most borrowers taking out £1m plus loans wanted the flexibility of an interest-only deal. “They will either be business owners or executives and will want control on cash flow, or City people who earn bonuses and expect to pay it off within five years,” he said.

Lenders are really pushing for large loans at the moment. They’re constantly undercutting each other

Trackers were proving attractive, he added, as they were often half a percentage point lower than fixed rate deals and would not require a charge for early repayment of the loan.

However Adrian Anderson, director at broker Anderson Harris, said large loan borrowers who were old enough to recall the era of record high interest rates in the late 1980s and early 1990s often preferred a hybrid approach.

“Some of my wealthier borrowers choose to take part of the mortgage at a fixed rate and part at a variable rate, allowing them to hedge against increases in interest rates while being able to pay down part of the mortgage with no penalties.”

This article has been amended to clarify the interest rate reduction offered by Coutts bank on large loans.