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Why would anyone with large amounts of cash want a mortgage?
Wouldn't they be better buying a place outright, or placing a massive
deposit against their dream pad? Most people who are cash rich either
want to keep hold of their cash for other projects, or wish to gear their
cash against an even more expensive property than they could buy outright.
Borrowing large amounts of capital against property
can be difficult, even when the borrower has a large deposit.
Here are some of the reasons why:
- Lenders believe that higher priced property is vulnerable to fluctuations
in the value, especially in a downturn.
- Many lenders are reluctant to take into account large bonuses, which
frequently make up high earners remuneration.
- Many high earners do not have a stable income; they may work on rolling
contracts or fixed term contract - executive management, or be self-employed,
or freelance.
- Many high earners are personalities, sports people or people who manage
these groups, and earnings can be in line with being in vogue.
- On large mortgages, the lender will look closer at the property as
security and often demand full structural reports before advancing funds.
- Many lenders will only lend up to 75% for mortgages over £500,000.
So, be prepared to place a reasonable amount of cash into the deal anyway.
- Some lenders who feel more exposed than they usually do, will charge
a higher rate of interest on large mortgages. These should be avoided
as there are plenty who offer preferential rates.
So, what can large borrowers do to help their situation?
- If you need to take bonuses into account to justify your high amount
of borrowingthen be able to demonstrate that this is a regular occurrence.
A lender is more likely to take say 50% of your annual bonus if you've
received it for the last three years say.
- Seek advice from a mortgage adviser who has experience of raising
large loans. Not all brokers have the necessary contacts to place the
business. On large cases, sometimes you need to apply to a lender who
can use discretion.
- Suggest a meeting with the lender, or via your broker. This can often
help by allowing the underwriter of the loan to learn about your circumstances.
How much do you understand about their role? It's unlikely the person
lending the money will understand a great deal about your work either.
You can then explain how you contract is structured and your experience.
This will help place the bank or building societies mind at rest.
- Demonstrate that your contract is not a one off, if you've worked
on a contract basis for a number of years. Be prepared to show continuity
of employment and your ability to find work.
- If the loan to value is low enough, say 50% or under, a lender may
ask for less, little or even no proof of income, especially if you keep
you're borrowing to under £500,000.
- Remember to ask if there are any special deals for large mortgages.
Some lenders reserve extra special rates for sizeable deals. They may
offer a special rate that tracks the Bank of England base rate. A variable
rate loan is likely to have less redemption penalties, which could be
handy when having a large amount of lending.
- Some lenders are more efficient than others when dealing with large
mortgages and have specialist teams dedicated to high earners. Make
sure you speak to your mortgage adviser about being looked after properly.
Large loans tend to be linked to very desirable properties and therefore
need to be dealt with speedily.
- Some lenders will offer special arrangements for qualified professionals
such as doctors, dentists, accountants, solicitors, etc. They may offer
higher amounts of lending, common sense decisions and preferential interest
rates.
Raising a larger than average mortgage if managed correctly
need not be a hassle. Speak to an adviser before viewing that dream home.
That way you can have all the necessary paperwork handy for when they
make the application form out for you. The key to securing a desirable
property is speed. So, be one step ahead of the game!
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