Britain's biggest mortgage banks are penalising people who want large home loans. Borrowers seeking more than £800,000 face larger deposits, delays in getting approval from more cautious lenders, lower income multiples and in some cases higher interest rates. "This is one of the only areas where borrowing more means you pay a higher rate," says Mark Harris at mortgage broker Savills Private Finance. This is in sharp contrast with the personal loans market, where banks encourage people to borrow more by cutting interest rates on higher loans.
Borrow £1m or more from Halifax, Britain's biggest mortgage bank, and the best deal you can get is the Bank of England's base rate plus 0.5 percentage points - 5.75 per cent currently. That compares with 5.25 per cent deal for smaller loans. Abbey National, the second biggest mortgage bank, also limits the choice for big borrowers. It says it treats each case on its merits. However, if you want to borrow more than £250,000 you will normally need a hefty 10 per cent deposit - so that means for a £1m mortgage, you'll need to stump up £100,000.
Rates, too, are not the best. If you borrow more than £200,000, expect to pay Bank of England's base rate plus 0.5 per cent. That compares with cheaper rates on lower loans - for example, in the first year of a three-year mortgage, borrowers are charged a 1.65 per cent discounted rate, which currently works out at 4.6 per cent. Banks take this approach because they do not want to lose money by offering "loss leader" mortgages to rich borrowers. They move to another lender offering a cheap deal before the banks have a chance to make profits by raising interest rates on the loss leaders. "We were lending money below cost of funds," says Phil Jenks at Halifax.
Banks are often cautious about how much they are willing to lend. "Lenders will often limit multiples to three times income," says Ray Boulger, technical director at mortgage broker John Charcol. By contrast, some lenders may offer to lend up to five times your income on a smaller loan. If bonuses make up a large part of your overall salary you could face problems. Many lenders will not consider bonuses when deciding how much they will lend. So if you want to take out a sizeable mortgage where do you go?
Borrow £1m or more from Halifax, Britain's biggest mortgage bank, and the best deal you can get is the Bank of England's base rate plus 0.5 percentage points - 5.75 per cent currently. That compares with 5.25 per cent deal for smaller loans. Abbey National, the second biggest mortgage bank, also limits the choice for big borrowers. It says it treats each case on its merits. However, if you want to borrow more than £250,000 you will normally need a hefty 10 per cent deposit - so that means for a £1m mortgage, you'll need to stump up £100,000.
Rates, too, are not the best. If you borrow more than £200,000, expect to pay Bank of England's base rate plus 0.5 per cent. That compares with cheaper rates on lower loans - for example, in the first year of a three-year mortgage, borrowers are charged a 1.65 per cent discounted rate, which currently works out at 4.6 per cent. Banks take this approach because they do not want to lose money by offering "loss leader" mortgages to rich borrowers. They move to another lender offering a cheap deal before the banks have a chance to make profits by raising interest rates on the loss leaders. "We were lending money below cost of funds," says Phil Jenks at Halifax.
Banks are often cautious about how much they are willing to lend. "Lenders will often limit multiples to three times income," says Ray Boulger, technical director at mortgage broker John Charcol. By contrast, some lenders may offer to lend up to five times your income on a smaller loan. If bonuses make up a large part of your overall salary you could face problems. Many lenders will not consider bonuses when deciding how much they will lend. So if you want to take out a sizeable mortgage where do you go?
If you want to use bonuses to cut your debt, think about a three-year deal from Woolwich. Available through Charcol, it has no stated maximum loan size. The interest rate in the first year is 1.75 percentage points below the bank's variable rate (currently 7 per cent). In years two and three, the discount falls by 0.1 of a percentage point.
If you want to insure against the possibility of rising mortgage rates, try taking part of your mortgage on a fixed-rate basis. This will ensure that part of the interest payments will not rise during the deal. If you want the security that your mortgage rates will not rise, Savills Private Finance offers a mortgage charging base rate minus 0.1 percentage points. Available only through Savills Private Finance, it is financed by Portman building society and lasts until January 2004. During this period, rates cannot rise above 5.99 per cent. Other lenders active at the top end of the market include Cheltenham & Gloucester, Britannic Money and Bank of Scotland, says Savills' Harris.
Time can be crucial. Beware of banks that take a long time to deal with a big mortgage application, because they might cost you your dream house. Boulger adds: "Some people will be cash buyers and able to exchange fast.". If speed is vital and you use a private bank, you could arrange a deal with them. The disadvantage is that rates are unlikely to be competitive. If you use a broker, expect to pay between 0.25 per cent and 0.6 per cent of the loan. You might also think about borrowing through a trust to ensure that any legacy is used wisely by heirs. "Spendthrift children may inherit a property worth £1m and blow it in a year," warns Mike Sargeant at Investec, the private bank.
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