Mega-mortgages return to the high street

Large mortgage loans are making a comeback on the high street, with Nationwide Building Society set to launch a new range in the next few weeks.

High street lenders pulled out of the £1m-plus mortgage market following the credit crisis, leaving private banks to take up the majority of the lending at this level. But with increased activity at the top end of the housing market, more high street lenders are now looking to re-enter the large loan business.

Nationwide currently lends a maximum of £1m but the building society plans to increase its large loan offering to £3m.

This week, Santander launched a new deal for large mortgages between £1m and £2m. These are available at a two-year fixed rate of 3.49 per cent with a £1,995 fee, and for up to 70 per cent loan to value.

“The larger high street lenders are looking to make limited forays into the £1m- plus lending arena,” says Nigel Bedford of Largemortgageloans.com. “The key to their success will be delivering on a combination of decent rates and sensible underwriting.”

Mortgage brokers say that Nationwide’s offer is currently the most competitive: its maximum loan of £1m is offered at a two-year tracker rate of 2.49 per cent or a two-year fix at 3.19 per cent, both with a £999 fee and available up to 70 per cent loan to value.

“If they can offer similar [rates] at over £1m that will be very attractive and as good as any private bank where the client is looking for just a straight lend,” says Bedford.

Aaron Strutt of Trinity Financial Group, the mortgage broker, agrees. “Nationwide’s rates will have to be competitive if it wants to attract large mortgage loans as it will have a lot of competition,” he says.

Other high street lenders offering reasonably-priced large loan deals include Abbey, Royal Bank of Scotland, Halifax, Woolwich and Clydesdale Bank. Abbey will lend up to £2m at 70 per cent loan to value while Halifax will lend up to £2m at 75 per cent loan to value and potentially up to £7.5m at 70 per cent.

However, Halifax no longer offers interest-only mortgages on loans above £500,000.

Bedford says Nationwide will need to lose its “tick box” mentality if it is to be successful in the large mortgage loan market. “It is far more common for these clients to have complex income streams, with bonuses, business profits, investment income etc often forming part of the overall income picture,” he explains. “Too often the large loan underwriters of high street banks do not have the authority or flexibility to approve these types of cases.”

However, Melanie Bien of Private Finance, the broker, believes private banks will still corner the large loan market. “They are more flexible, understanding what these clients with large loans really want, such as interest-only borrowing, no early repayment charges, mixing and matching of fixed and variable rates and being able to pay off chunks of the loan using bonuses,” she says.

Bien says Santander’s new large loan deal is a good example of a high street lender not understanding the market. She says the deal is not competitive and wealthy borrowers do not tend to opt for a two-year fixed-rate mortgage.

The large loan deals are being launched ahead of April 6, when stamp duty on properties that exceed £1m rises from 4 per cent to 5 per cent. Mortgage brokers have reported a rise in the number of housebuyers looking to complete before April – or sooner – in order to beat this higher rate.

“From December until now, we’ve seen a significant increase in the number of buyers looking to complete before the end of March,” says Bedford.

Gary Festa of HFM Columbus, the financial adviser, has also seen the £1m-plus mortgage market become more busy. Festa warns that borrowers wanting to beat the duty hike need to hurry. “If you are in the process of buying a property over £1m and want to avoid a 25 per cent increase in stamp duty, you only have two months to finalise the purchase,” says Richard Godmon, tax partner at Menzies.