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Capital's million pound mortgage crunch

ended 06. September 2023

New data from Dashly, the mortgage insight platform that monitors over £100 billion of mortgages, shows that homeowners in London with £1m mortgages will see their payments rise, on average, by 38% over the next six months. 

Based on a sample of 250 fixed rate mortgages in the capital between £750k and £2.5m (with an average balance of £1,030000 on a £1.78m property) that are due to end between now and the end of February, and assuming borrowers switch to the best available rate instead of lapsing onto their standard variable rate, the average monthly payment will rise by £1572 a month, from £4137 to £5709 — or £18,864 a year, an increase of 38%.

Dashly's analysis also found that the average interest rate will rise from 1.66% to 5.16%. Ross Boyd, Dashly CEO, commented: “Payments are going up for everyone, but for people with sizeable mortgages, the increase will be particularly steep. Even wealthy London homeowners will feel an increase of over £1500 a month and some may have no choice but to downsize. Expensive properties in the capital were manageable during the era of record low rates, but that era is now over and we may soon start to see the fallout.”

Neezam Romjon, co-founder of Rebus Financial Services, said more people could potentially leave the capital or consider taking in lodgers to stay above water: “I think we are about to see another wave of London homeowners looking to relocate to other regions of the UK. I also suspect we'll also see more people with £1m+ loans in London looking for lodgers to provide them with another income stream simply to afford the increase in mortgage payments.”

Meanwhile, Riz Malik, director of Southend-on-Sea-based independent mortgage broker, R3 Mortgages, said more Londoners with sizeable mortgages are switching to interest-only to cushion the blow: “In the capital, we're noticing an increase in requests to convert all or part of the mortgage to interest-only, particularly for larger loans, as desperate homeowners seek to reduce their monthly payments. However, serious challenges emerge when those already on interest-only plans struggle with their payments.”

Malik's views were shared by Amit Patel, adviser at Welling-based mortgage broker, Trinity Finance: “For those London borrowers who will see their monthly repayments skyrocket by hundreds of pounds, a good option could be to switch to an interest-only mortgage to ride out the storm. However, this repayment type will not be suitable for everyone and will depend on an individual's circumstances so it's crucial to speak to an independent mortgage adviser to explore all the options."

Craig Fish, managing director at London-based mortgage broker Lodestone, said higher net worths are often able to weather financial storms, although landlords with large mortgages may prove the exception: “Those with £1m+ mortgages in the capital do tend to have a fair amount of financial proficiency, alongside their sizeable incomes. These types are more than capable of surviving the storm headed London's way, so forced sales are unlikely. The same can't be said about the buy-to-let market, and this is where we may see forced sales as landlords unable to achieve enough rent have to exit the market. This is likely to push property values down on average in the capital, and I fear we haven't seen the worst of it yet.”

Dean Esnard, director at London-based Magni Finance, agreed with Fish, saying that “high earners generally have more options available to them. They can normally put down a larger deposit, obtain interest-only loans or take advantage of offset mortgages to help reduce payments. High net worth individuals are either paying some of their mortgage down with surplus funds or keeping it and using the cash to invest in different stocks and bonds with a view to getting a higher return than the mortgage cost. We had one client recently who paid off a £5m mortgage completely."

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12 responses from the Newspage community

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Neezam Romjon
Co-Founder at Rebus Financial Services
I think we are about to see another wave of London homeowners looking to relocate to other regions of the UK. I also suspect we'll also see more people with £1m+ loans in London looking for lodgers to provide them with another income stream simply to afford the increase in mortgage payments. The question is, who is going to be buying up the higher-value properties with interest rates where they are? My guess is cash buyers. I think this is going to widen the wealth gap even further.
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Riz Malik
Independent Financial Adviser at R3 Wealth
In the capital, we're noticing an increase in requests to convert all or part of the mortgage to interest-only, particularly for larger loans, as desperate homeowners seek to reduce their monthly payments. However, serious challenges emerge when those already on interest-only plans struggle with their payments.
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Ross Lacey
Director & Independent Financial Adviser at Fairview Financial Management
For our clients in this situation, we've been looking at extending the term or converting some or all of the borrowing to interest-only. For those already on an interest-only basis, there's not much that can be done other than minimising the loan to value where possible to secure the best rates or repaying some of the mortgage with savings/investments where appropriate.
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Craig Fish
Director at Lodestone Mortgages
Those with £1m+ mortgages in the capital do tend to have a fair amount of financial proficiency, alongside their sizeable incomes. These types are more than capable of surviving the storm headed London's way, so forced sales are unlikely. The same can't be said about the buy-to-let market, and this is where we may see forced sales as landlords unable to achieve enough rent have to exit the market. This is likely to push property values down on average in the capital, and I fear we haven't seen the worst of it yet.
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Stephen Perkins
Managing Director at Yellow Brick Mortgages
The 38% uplift on mortgage payments is painful but not specific to the London mortgage market, but evidently on these larger mortgages that is a bigger impact on a person's monthly outgoings. Owners with these mortgages will fall into two camps, the super-rich who will likely just wince a little and perhaps buy one less supercar this year to balance the books or avoid Le Caprice when it reopens, and the normal homeowner who has a large mortgage on an expensive London home but hasn't seen their income go up 38% to be able to ensure the mortgage and other bills remain affordable. This group will likely have to sell and perhaps leave the capital completely. Tragic for many families who have lived in London all their lives and are now being forced out through no fault of their own. The house price correction will happen, but for most it will likely be too late.
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Graham Cox
Director at Bridging Hub
The London house market has it's own unique dynamic, with a wide range of buyer types, including overseas investors. Many will be able to comfortably weather the storm. However, there will be a sizeable cohort facing extreme financial pressure when it's time to remortgage. Especially those buyers who purchased at the top of the market a few years ago and now face mortgage rates three to four times their current rate. Other than selling their property, moving to an interest-only product or extending the term are the best options. London house prices are already falling, but the pace of those falls is likely to accelerate over the next 6-12 months, as recent rate rises start to bite.
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Amit Patel
Adviser at Trinity Finance
For those London borrowers who will see their monthly repayments skyrocket by hundreds of pounds, a good option could be to switch to an interest-only mortgage to ride out the storm. However, this repayment type will not be suitable for everyone and will depend on an individual's circumstances so it's crucial to speak to an independent mortgage adviser to explore all the options. If prices do dive then foreign investors will jump at the opportunity to purchase real estate in prime central London.
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Dean Esnard
Director at Magni Finance
High value London properties have certainly taken a larger hit on house prices due to higher increases in mortgage payments. We have seen several clients pull out of purchases and pausing large house renovation projects until the market cools down. But we also have many wealthy clients who have seen this as a great opportunity to get prime property at a discount. High earners generally have more options available to them. They can normally put down a larger deposit, obtain interest-only loans or take advantage of offset mortgages to help reduce payments. High net worth individuals are either paying some of their mortgage down with surplus funds or keeping it and using the cash to invest in different stocks and bonds with a view to getting a higher return than the mortgage cost. We had one client recently who paid off a £5m mortgage completely. Foreign investors are also still buying in London as they see properties in the capital as a safe investment, keeping prices elevated.
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Scott Taylor-Barr
Principal Adviser at Barnsdale Financial Management
I have very few clients with million-pound mortgages and yes, they are very frustrated about the jump in rates they are seeing as they roll off ultra-low interest rate deals into the current market. However, whilst frustrated and keen to ensure they get the very best deal they can moving forward, they are not concerned in the same way that many would be at these increases, as most can afford it, with a few changes to certain areas of their lifestyle.
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Rob Gill
Managing Director at Altura Mortgage Finance
High Net Worth borrowers with loans of £1m or more will typically be able to access private bank mortgages. Private banks are typically more comfortable providing interest-only mortgages than mainstream lenders, allowing such borrowers to reduce their monthly payments by structuring all or part of their loan on an interest-only basis.
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Elliot Cotterell
Director at Windsor Hill Mortgages and Cotterell & Cotterell Commercial Finance
People who have mortgages of around £1m will usually have robust levels of income, generally of over £200k a year. This may offer these borrowers some extra capacity, perhaps by taking one less holiday a year, swapping cars for more cost-effective options or tapping into savings. Other options may exist for borrowers who could consider rotating part of the mortgage onto an interest-only product and waiting for rates to return to more normal levels. Alternatively, they could extend the mortgage term, use an offset mortgage or switch to a tracker if their view is that rates will soon come back down. The recent Mortgage Charter may offer some clients relief from payments for a certain period whilst other options are considered. That said, there will inevitably be some who see the pressure of increased payments as the final straw leading to yet more relocations into the shires. As a consequence, we are likely to see a dampening of prices and moderate price falls but not a shock.
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Rhys Schofield
Brand Director at Peak Mortgages and Protection
Demand for properties within the reach of first-time buyers is brisk, as increases in rates don't create such swings in repayments on smaller mortgages. On a larger mortgage we're talking several hundred if not thousands of pounds more a month, a tough pill to swallow. London with its higher property prices is therefore significantly more exposed.