What is classed as a large mortgage loan in the UK?
The answer to this question will vary depending on who you speak to, although from our experience, we would consider borrowing anything over £500,000 a 'large loan'.
Generally, the larger the loan amount, the fewer lending options you will have. This is because many well-known high-street lenders aren't able to offer these larger loans, therefore a specialist lender can sometimes be the better option. Where high street lenders offer large loans, they usually have added criteria and bespoke teams that will look at cases on an individual basis.
An experienced broker will be able to assess your circumstances and needs to make sure you are paired with the right lender. On top of this, they will also have relationships with those specialist lenders that aren't always available to the public and require an intermediary (like us!) to apply.
Are large mortgage loans harder to get?
Although the overall application process is very similar to that if you were getting a smaller loan, there are a few things that can make larger loans harder to get.
One of these, which we briefly discussed earlier, is the availability of lenders in the market. Many well-known high-street names usually don't like to get involved with larger loans. This is because of the additional risk that comes with borrowing higher amounts. Essentially, the bigger the loan, the bigger the loss for the lender if the borrower defaults.
Due to this additional risk, those lenders who are willing to help you are likely to carry out a very in-depth analysis of your financial situation and personal circumstances, which some may see as making it 'harder'. They do this to ensure you can comfortably afford the monthly mortgage payments.
Understanding lenders assessment criteria
While each lender will have their own unique way of assessing an application, the factors looked at will be similar across the board. Familiarising yourself with a lender's criteria before you apply can make sure that you put yourself in the strongest position and increase your chances of success.
Below we have listed some of the most common things large loan mortgage lenders are likely to look at:
- Income requirements: Lenders require significantly higher incomes for large mortgages, to ensure comfortable repayments. Specific income requirements vary, but expect a close assessment of your earnings.
- Debt-to-income ratio (DTI): A lower DTI, the percentage of income used for debt payments, is crucial for large mortgages. Lenders prefer a lower ratio, indicating better financial stability, minimising risk.
- Credit history: A strong credit history is key, any blemishes can significantly impact approval chances. On top of this, a strong credit history can also come with benefits, like being offered a lower interest rate.
- Loan-to-value (LTV): Large mortgages often require lower LTV ratios when compared to standard mortgages. While a £500,000 loan might require a 5-10% deposit (95-90% LTV), a £5 million loan could require a significantly larger deposit percentage due to the increased risk a lender is taking on.
- Proof of deposit: Lenders require verifiable documentation of your deposit's source. Typically, bank statements are used to support this.
- Affordability assessments: Lenders conduct rigorous affordability checks, scrutinising income, expenses, and financial commitments.
- Complex income streams: Self-employed individuals like contractors, require a very thorough assessment of stability. Lenders may apply stricter criteria to these income types, often requiring multiple years of records.
If you think you might not fit the criteria, or you may just have a question, feel free to get in touch! One of our advisors will be happy to discuss your situation during a free initial no-obligation consultation.
We at IMC Mortgage Brokers are experts in assessing these factors to find you the most competitive and suitable product for your needs.
Helpful tools if you are looking for a large mortgage loan
Stamp Duty
Calculator
Interest-Only Mortgage Calculator
Self-Employed Mortgage Calculator
Large loan mortgage interest rates
Like with any mortgage product, the interest rate you are offered will vary depending on a number of factors. Risk is a big consideration when determining the rate offered on a mortgage product.
An applicant that is deemed a 'higher risk' is likely going to be offered a higher rate. This is because a lender will want to offset any risk they are exposed to, so one way of doing so is increasing the price it costs to borrow money from them.
You may be seen as a 'risky borrower' if you have had credit issues in the past, or if you are providing a below-average deposit. Therefore, looking to improve your credit or save up that extra money for a deposit can make a big difference. While it may be costly in the short-term, it could save you lots of money in interest in the long run, especially on larger loan amounts.
Due to the nature of the market it can be very difficult to give everyone an idea of what interest rate they might expect, especially without understanding an individual’s personal circumstances. If you want to get an accurate idea of what interest you might expect to pay, get in touch today!
Types of large mortgages
There are various types of repayment options and product types for large mortgages, each with its own structure and implications. Understanding the different types is crucial for choosing the right mortgage for your needs. Here are some of the most common options:
This is the most common type of mortgage product, where monthly payments cover both interest and a portion of the principal. You will gradually pay off the loan over the term, providing certainty and ensuring full repayment.
Interest-only products involve the monthly payments only covering the interest, leaving the loan amount to be repaid in a lump sum at the end of the term. These products require a credible repayment strategy, known as a 'repayment vehicle', and are often harder to secure, especially for larger loans.
This is a type of variable interest rate product that ‘tracks’ a benchmark, such as the Bank of England base rate. Payments can fluctuate with the base rate, making budgeting more challenging but potentially beneficial when rates are low.
This where the interest rate is fixed for a set period, providing stable and predictable monthly payments. After the fixed period, the rate typically reverts to a variable rate, which is usually higher.
Where should you start if you are looking for a large mortgage loan?
As mentioned above, specialist large loan lenders aren't always straightforward to find. Therefore, due to the complex nature of this area of the market, we suggest contacting an expert mortgage broker, like us!
A member of our team will be happy to discuss your plans and circumstances and then advise you on your next steps. So, if you are ready to make a start, why not book a free, no-obligation consultation today?
