Mega Mortgages Increasingly Common Outside London

The prevalence of large mortgages, defined as loans of £500,000 or more, is surging in areas outside of London and the South East of England, according to analysis by estate agent Savills. This trend indicates a rise in the number of homes selling for £550,000 or more, with one in 17 mortgages in Britain exceeding £500,000 last year.

While London historically dominated the market for such high-value loans, accounting for 42% of the total, the number of these mortgages issued in the capital has declined by 2.4% since 2021. The South East has also seen a 2.3% decrease. This softening in the prime London and South East markets may be due to recent price falls taking some properties below the £500,000 threshold, or a general slowdown in transactions.

Conversely, regions beyond the traditional property hotspots have experienced substantial growth in mega mortgages. The Midlands saw a 17% increase, the North of England 16%, and Scotland, Wales, and Northern Ireland collectively saw a 28% rise in £500,000-plus mortgages over the same period. These regions have also benefited from stronger house price growth in recent years, making them more accessible even with larger loan amounts.

Data from the Office for National Statistics (ONS) shows that house prices in the North East rose by 3.2% and in the North West by 2.2% in the year to August. This contrasts with a 2.2% decrease in London and a 0.8% fall in the South East during the same period. The average home price across Britain was £273,000 as of August, showing a modest 0.9% increase year-on-year.

Several factors contribute to this shift. Increased house prices and accumulated equity over years have allowed more households to take on larger loans. Furthermore, regulatory changes have made it easier for lenders to offer bigger mortgages. Many lenders have lowered their 'stress rates'—the hypothetical interest rates used to test borrowers' finances—in response to guidance from the Financial Conduct Authority (FCA). This means more borrowers are deemed able to afford higher repayments.

Additionally, a loosening of financial regulations has enabled lenders to offer mortgages up to six times a borrower's income, and sometimes more, whereas previously a cap of 4.5 times income was more restrictive for higher loan amounts. Lucian Cook, head of residential research at Savills, noted that greater flexibility in affordability testing has facilitated access to larger mortgages for higher-earning households, despite increased borrowing costs.