UK banks cut rates on multimillion pound mortgages

High street banks are targeting wealthier home buyers with rate cuts on multimillion pound mortgage deals, as competition between lenders intensifies in the booming UK housing market. 

Barclays this week trimmed its rates on a range of mortgages for those seeking to borrow between £2m and £10m. For those with a deposit of at least 40 per cent, it has a two-year fixed rate deal at 1.09 per cent, with a £1,999 fee. The rate on its five-year deal, on similar terms, is 1.27 per cent. 

NatWest’s rates on many of its mortgage deals arranged via brokers will fall from today, with cuts of between 2 and 10 basis points. On loans of up to £10m, it offers a two-year fix at 1.08 per cent and a product fee of £995 for those with a 40 per cent deposit.

Halifax, Santander and HSBC have also reduced interest rates for multimillion pound loans since the beginning of May. 

The UK housing market has been in overdrive as buyers moved to homes more suited to remote working and the stamp duty holiday in England and Northern Ireland — extended in March — triggered a wave of activity among buyers and sellers. 

More sales went through in the first three months of 2021 than in any quarter since 2006, according to HMRC transaction estimates. This frenetic activity has been reflected in soaring house values: average UK prices jumped 10.2 per cent in the year to March 2021, according to the Office for National Statistics — the fastest rate since August 2007. 

After the housing market was effectively closed during the first lockdown in March 2020, banks were wary of lending to all but the lowest-risk borrowers. They have since scrapped many temporary lending restrictions as they jostle for business in the busy market. 

Aaron Strutt, product director at broker Trinity Financial, said: “Last year lenders capped maximum loan sizes, stopped taking bonuses [when judging affordability] and reduced income multiples. Now they’re making up for lost time.” 

While banks were still selective over the criteria to assess applicants, cheap funding conditions meant their appetite to lend was acute, said Nigel Bedford, associate director at broker Largemortgageloans.com. “If they want the clients badly enough and they tick the boxes, lenders are falling over themselves to lend. They have too much money at the moment and want to get it out there.”

Reductions are also appearing on large-loan deals at higher loan-to-value ratios of 75 or 80 per cent. Though the latest cuts to mortgage interest rates were as small as 2 basis points, such differences can translate into substantial savings on multimillion pound mortgages. 

Bedford pointed to a deal struck less than a month ago on a £10m London home. The borrower took out a mortgage of £7.5m with NatWest on a five-year fixed rate of 1.63 per cent, and a product fee of £995. 

Today the same deal is available at 1.59 per cent. “It doesn’t sound a lot, but on a mortgage that size it will save the client a nice £15,000 in interest over the five years,” he said.

In the past, private banks offered the primary lending route for wealthy borrowers, but high street banks have made inroads over the past decade with competitive deals on rates and flat charges for administering a home loan. On a £7m mortgage, Bedford said, a mainstream bank might charge a standard flat fee of £1,000 or £2,000; for a private bank charging a fee of 1 per cent of the loan, the bill would come in at £70,000. 

While private banks are more willing to lend to those with complex circumstances or specialised needs, many mainstream lenders are once again including bonuses when adding up a borrower’s income, providing more options for bankers, lawyers, business owners and others for whom variable pay is a large proportion of their annual income. “More lenders are accepting bonuses, which is helping…