View more on these topics

HARRIS on Mortgages

It has been a busy few months for Savills Private Finance, particularly at the top end of the market.

So far this year, we have completed on 50 residential mortg- ages in the £1m-plus bracket – more than double the business done in the prime market over the same period last year. It is an encouraging sign of a pick-up in the top end of the market, particularly in London and the South-east area.

But while this is encouraging, the products available to these clients are desperately in need of an upgrade. This market demands speed, certainty of delivery by a tight exchange deadline and flexible products. Mix-and-match mortgages are particularly popular, with multi-currency deals suiting some clients and offshore issues concerning others.

Brokers can identify the key lenders which cater for this market and pull out the stops to ensure the client gets the funding by the deadline. But it is the lenders which need to sharpen up their acts. The main issue that needs addressing is quicker turn-round. Big lenders can move fast because they have mandates to certain levels but this is by no means the case with all lenders. Building societies, in particular, spring to mind, where two or three board members have to agree funding before broker and client receive the go-ahead.

Something which needs to be decided quickly becomes a tedious process. A broker working to a tight deadline cannot take the risk of using such a lender. If the application is rejected, there is little time left to find an alternative.

Clients spending millions of pounds on a home purchase are also penalised when it comes to loan to values. Lenders will agree to let a borrower have 85 per cent LTV up to £2m, but borrow more than this and the LTV drops to 75 per cent. Some lenders will even require as much as a 35 per cent deposit on a £2m-plus loan.

Why penalise these clients so heavily for the value of their property? If their credit history stacks up, lenders must have the ability to be more flexible.

Why does the wealthy professional have to put down a 35 per cent deposit because he is buying a £3m house? It does not necessarily follow that he cannot afford the mortgage repayments if he can only put down a 15 per cent deposit. I would say there is less chance of a high-net worth client defaulting on their mortgage than someone who has struggled to buy a £150,000 property.

The problem seems to lie with the term “£1m”. Providers will lend up to 100 per cent LTV on properties costing up to £1m but woe betide anyone wanting a £1.5m property.

Once you cross the £1m psychological barrier, a 20-year earnings’ record and successful career counts for little because the lender’s criteria states you have to put down a deposit. Many lenders refuse to be flexible and there is not enough choice for clients and brokers.

After all, £1m isn’t that much these days when it comes to property. Ten years ago, when providers set these criteria, £1m could buy you a lot of bricks and mortar. But since 1994, all English regions have seen house price growth ranging between 140 and 180 per cent, according to Savills research and £1m no longer gets you as far as it did.

As buyers looking in the prime market become increasingly price and quality-sensitive, they are demanding better mortgage terms. Year-on-year growth in prime central London is running at 1.1 per cent with a slightly higher growth rate in the market for prime country property.

Asking prices have been readjusting to levels where buyers are prepared to commit but that is no use if they cannot get a mortgage that enables them to secure a property.

Mark Harris is managing director of Savills Private Finance

Recommended

SGAM chief Warner joins Close Finsbury as CEO

Close Asset Management has appointed SG Asset Management’s Rufus Warner as chief executive officer of Close Finsbury Asset Management. Warner is SGAM’s deputy head of global marketing and head of European pension business development based in Paris. He joins Close on June 1. He has 22 years’ experience as an analyst, fund manager and developer […]

Profits triple for Positive Solutions

Positive Solutions has seen a 98 per cent increase in turnover, bringing business in the first quarter of the year to 15m from 7.5m in the same period last year.

US equities: opportunities for short sellers expand

Optimism is as American as baseball and apple pie. And since the financial crisis, being optimistic about US equities has paid off: they have outperformed every other major developed market by a comfortable margin. Yet while there remain plenty of good reasons to be optimistic about US equities, Stephen Moore, manager of the Artemis US […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment