With property prices steadily climbing, homeownership is becoming an even larger financial commitment, especially in high-demand areas. Many buyers are finding that traditional mortgage options no longer meet their needs.
Growth in the number of high-value properties is driving this trend. Savills estimates that over 670,000 homes in Great Britain are now valued at £1 million or more, marking a 28% increase since 2019. In response, lenders are taking action, offering larger loans, extending mortgage terms and higher loan-to-income (LTI) ratios to help borrowers afford their ideal homes.
Adding to this pressure, Stamp Duty thresholds will return to lower levels in April next year, likely prompting a surge of transactions as buyers rush to avoid higher costs. This expected surge adds to an already competitive market, where many buyers are borrowing more to secure the property they want. For lenders and brokers, these shifts mean adapting quickly to meet the growing demand for larger loans.
Rising demand for large loans
Demand for larger property loans has grown in tandem with rising property prices. Recent data from the FCA shows that new mortgage commitments have increased by 11.3% in the last quarter, highlighting a clear appetite from borrowers. First-hand at Saffron, we are also seeing strong demand for larger loans from more affluent customers, which is why we took steps to increase our loan size up to £5m for our owner-occupied large loan range to ensure we are evolving with the needs of the market.
However, lenders are not only raising maximum loan amounts but also adjusting LTI ratios to offer borrowers greater flexibility. For instance, some lenders now allow first-time buyers to access loans up to six times their annual income, making it easier to secure properties that may have previously been out of reach. Saffron has also introduced its Professional Income Boost range, which offers borrowers of specific professions up to 5.5 times their income, expanding options for those needing higher borrowing power.
Lenders are having to adapt to this demand by enhancing risk management strategies. Responsible lending is paramount, and this involves assessing not just a borrower’s current financial position but also conducting rigorous stress tests to prepare for potential economic shifts. With interest rates fluctuating, it’s critical to understand how these changes could impact a borrower’s ability to repay their loans over time.
Importance of broker guidance
As the landscape of high-value mortgages evolves, expert advice is increasingly important in helping clients navigate these larger loans. Extended mortgage terms are becoming more common, with many buyers now looking to spread payments over as much as 40 years. While this approach helps manage monthly costs, it does mean higher total interest over the loan’s lifespan. Data from the Bank of England shows that in the fourth quarter of 2023, 42% of new mortgages—around 91,000 loans—had terms stretching beyond the state pension age.
For many first-time buyers, longer mortgage terms are becoming increasingly popular too, with around 21% of new borrowers opting for home loans lasting more than 35 years, according to UK Finance. This trend underscores the challenges they face, such as navigating flexible repayment options and understanding higher loan-to-income ratios. In this landscape, brokers are essential, providing tailored support and guidance. They help clients identify the best mortgage products for their financial situation, explain the nuances of different loan options, and assist in the application process to ensure all necessary documentation is in order.
Brokers can also negotiate terms on behalf of their clients, leveraging their relationships with lenders to secure better rates and conditions. This advocacy is particularly valuable in a competitive market where even small differences in terms can have significant financial implications for borrowers.
What it means for the market
The growing interest in large-loan mortgages reflects a wider shift in the mortgage market. As borrowers increasingly seek larger sums, the profile of homebuyers is changing, with middle and upper-income earners leaning on extended terms to secure homes that fit their aspirations. This dynamic contributes to a competitive market where adaptability is key.
This evolving landscape gives lenders a great chance to innovate and create products tailored specifically for high-value clients. At the same time, it requires a solid grasp of the associated risks. By actively collaborating with brokers and borrowers, lenders can refine their offerings to meet the demands of a rapidly changing market. Recent increases in maximum loan sizes reflect this proactive approach, especially given the heightened interest from affluent customers.
As the mortgage industry continues to evolve in response to the rise of large loans, it is clear that the roles of both lenders and brokers are more important than ever. By working together, they can provide the necessary support and solutions that borrowers need in a competitive landscape. With a focus on innovation, responsible lending, and clear communication, the industry can effectively meet the challenges ahead while ensuring that homeownership remains an achievable goal for as many as possible.
