There’s a shortage of mainstream finance for £1 million properties, argues Martin Kearns, head of strategic policy at Tiuta plc
Back in the mid-1950s Cole Porter wrote a song for the film High Society entitled ‘Who Wants to Be a Millionaire?’ – regardless of the fact that the lyrics are actually an ode against consumerism and wealth for wealth’s sake, it’s interesting to note, over 50 years on, that the holy grail of wealth is still that number one with six zeros.
Back in the 1980s, Del Boy and Rodney dreamed of being millionaires ‘this time next year’ and the notion of ‘millionaire living’ still seems to hold the UK public enthralled. How else would you explain the popularity of quiz shows such as Who Wants to Be a Millionaire? or more recently The Million Pound Drop. The goal/ambition/target of a million pound in the bank still seems like something worth pursuing mainly for the belief that, once achieved, we will be able to put our feet up, enjoy our wealth, live off the interest and effectively be destined for a life on easy street.
Of course the value of that million has reduced dramatically since the days when Cole Porter put pen to paper, indeed, if Del Boy had achieved his goal early in the eighties then he would have been able to secure far more hooky goods for his dosh than today. Rising inflation erodes the value of a million in the bank with each year that passes and therefore perhaps we will move to a time in the not so near future when 10 million becomes the new million.
Certainly we must question how many people would be able to retire now if they became millionaires? In our sector it would be very easy to buy a property worth a million pounds today simply because there are so many more on the market for this amount. Recent research from Lloyds revealed that 185,000 people in the UK are now property millionaires while 7,185 property buyers shelled out a million pounds or more on a purchase last year alone. That is 20 buyers every day. What would Cole Porter have made of that one wonders?
The fact is that rampant house price inflation, particularly over the last decade or so, means the million pound house is hardly uncommon. Most areas of the country have them although they are particularly abundant in London and the South East. One does wonder however if mortgage finance arrangements have moved so quickly to keep pace with an increase in house prices? I suspect not and while there are large loan arrangers and specific lenders focused on the larger loan sector, it is not always the easiest task for potential million pound house buyers to make the purchase.
Increasingly, in our line of work we are seeing bridging loan amounts which register in the million pound-plus bracket indeed one hesitates to say they are commonplace but particularly in London and the South East they are much more prevalent. It is important that brokers, dealing with such high-end properties and high-net worth clients, are aware of the finance options available particularly at a time when many high-street lenders will not want the risk or have the appetite to lend on such large amounts. We have already seen mainstream lenders pulling back from the million pound loan market and therefore, from this perspective, brokers may have to offer other solutions in order to make the deal happen – bridging finance is increasingly being used for this very purpose.
House price indices show many different fluctuations however the overall assessment tends to be that at the top end of the market, particularly in London, prices are holding up and asking prices are being met. This market tends to stand apart from the UK as a whole and brokers who have clients active in these areas will certainly benefit from a wide knowledge of the bridging and short-term finance arrangements that can be put in place should, as increasingly happens, the mainstream market is unable or unwilling to produce the finance.
Millionaires’ row has certainly got more crowded in recent years and this is only likely to continue in the years ahead. The allure of a million pounds will not go away and the quest to be a millionaire will not recede, however we suspect that many more people will reach this target via the property they own rather than available cash in the bank. As an industry we should therefore be ready to service this changing property and finance landscape – there are a million reasons for brokers to do this.
