Mega Mortgages Expand Beyond London, Fueling Regional Property Growth

The prevalence of mortgages valued at £500,000 or more has significantly increased in regions outside of London and the South East of England over the past five years. This trend suggests a growing number of homeowners are stretching their borrowing capacity to purchase larger properties.

According to analysis by estate agent Savills, based on Financial Conduct Authority (FCA) data, mortgages of £500,000-plus issued outside the capital and wider South East rose by 18 percent between 2021 and the present. This indicates a rise in the number of homes being sold for £550,000 or more, considering the typical 5 percent deposit requirement.

Last year, one in every 17 mortgages issued in Britain was for over £500,000. While London still accounts for the largest share of these high-value mortgages at 42 percent, the number issued in the capital has seen a slight decrease of 2.4 percent since 2021. The South East also experienced a 2.3 percent fall in such mortgages.

Several factors may contribute to this shift. Falling house prices in some of London and the South East's most expensive areas may have brought property values below the £500,000 threshold. Additionally, a sluggish property market in these regions could be leading to fewer overall transactions.

In contrast, the Midlands has seen a 17 percent increase in £500,000-plus mortgages, the North of England 16 percent, and Scotland, Wales, and Northern Ireland combined have seen a 28 percent rise in the same period. These regions have generally experienced stronger house price growth in recent years due to greater affordability, while London and its surrounding areas have seen slower growth.

For example, ONS data shows house prices rose by 3.2 percent in the North East and 2.2 percent in the North West in the year to August. This contrasts with a 2.2 percent fall in London and a 0.8 percent fall in the South East during the same timeframe.

Lucian Cook, head of residential research at Savills, noted that the half-million-pound mortgage is no longer exclusive to buyers in London and the South East. He attributes this growth to rising house prices and accumulated housing equity enabling more households nationwide to take on larger loans.

Beyond rising property values, looser lending rules have also facilitated larger mortgages. Many lenders have lowered their 'stress rates'—the hypothetical higher interest rates used to test a borrower's financial capacity—in response to guidance from the FCA. This means banks are more likely to approve higher repayment capacities and thus larger loans. Furthermore, regulatory changes have allowed more borrowers to secure loans up to six times their income, and sometimes even more, a significant increase from previous restrictions.

Cook added that despite current higher borrowing costs, increased flexibility in affordability stress testing has aided more higher-earning households in obtaining mortgages of £500,000 and above.