Expert insight: Why £1m, £2m and £5m mortgages are different markets

It’s tempting to think of a £5 million mortgage as simply a larger version of a £1 million mortgage.

It isn’t.

As mortgage values increase, the lenders involved can change, the way affordability is assessed can change and the importance of assets, liquidity and the wider banking relationship can become much greater.

Even the route to getting a mortgage approved can be very different.

There are no precise dividing lines. A £1.9 million mortgage doesn't suddenly become a different type of lending at £2 million. But broadly speaking, £1 million, £2 million and £5 million mortgages can operate in quite different parts of the mortgage market.

£1 million is no longer particularly unusual

A £1 million mortgage is clearly a substantial commitment, but it is well within the appetite of a number of mainstream banks and building societies.

For borrowers with strong conventional incomes, the assessment can therefore look surprisingly familiar.

The lender will consider salary, bonus, commission or other acceptable income, assess expenditure and existing commitments and use its affordability model to determine how much it is prepared to lend.

There may be additional scrutiny because of the loan size, and maximum loan-to-value limits can become more restrictive as borrowing increases, but a £1 million mortgage doesn't necessarily require a private bank.

For the right applicant, a mainstream lender may still provide the most appropriate solution.

At £2 million the lender pool starts to look different

Move towards £2 million and the market begins to narrow.

Some mainstream lenders remain comfortable at this level, particularly for applicants with substantial and easily evidenced income. Others impose maximum loan sizes or reduce the percentage of the property's value they're prepared to lend.

This is also where specialist high-value lenders and private banks become increasingly relevant.

The reason isn't simply the size of the mortgage. Borrowers requiring £2 million frequently have financial circumstances that don't fit neatly into a standard affordability model.

Their remuneration might include large bonuses, carried interest, restricted stock units or partnership income. They may own businesses, hold substantial investment portfolios or receive income from several different sources.

At this level, how the lender assesses wealth can become almost as important as how it assesses income.

£5 million can be a genuinely different market

By the time borrowing reaches £5 million, the number of lenders prepared to consider the mortgage has reduced considerably.

Private banks become much more prominent, although they aren't the only lenders operating at this level.

The underwriting is also likely to become considerably more individual. Rather than relying predominantly on a standard affordability calculation, the lender may want to understand the client's entire financial position.

What do they earn? What do they own? Where is their wealth held? How liquid is it? Are there significant future bonuses, business sales or other liquidity events? How will the mortgage be serviced and ultimately repaid?

For someone trying to establish how much income is needed for a £5 million mortgage, there may therefore be no particularly useful single answer.

For some borrowers, conventional income remains fundamental. For others, assets, investment income and wider wealth may play a significant role in how the borrowing is assessed and structured.

Loan-to-value can become more important as borrowing increases

A common assumption is that very wealthy borrowers can automatically obtain higher loan-to-value mortgages.

Often, the opposite is true.

Many lenders become more cautious as the absolute amount of money at risk increases. A lender comfortable advancing 80% or 85% on a smaller mortgage may have lower maximum loan-to-value limits once borrowing moves into several million pounds.

That doesn't necessarily mean the client needs to provide the entire difference in cash.

Depending on the lender and the client's circumstances, investment assets, additional property or a wider private banking relationship may influence how the overall transaction can be structured.

The larger the mortgage, the more important the structure of the transaction can become.

The property starts to matter differently too

At higher loan sizes, lenders aren't only assessing the borrower more carefully. They're also considering the asset they're lending against.

A £5 million property has a smaller potential buyer pool than a £750,000 property. A £10 million country estate, prime London apartment or unusual high-value home may have an even more specialised market.

Valuers therefore consider not simply what the property is worth, but how readily it could be sold if circumstances ever required it.

Location, property type, condition, acreage, unusual features and local demand can all become increasingly important.

A wealthy applicant and a valuable property don't automatically make a straightforward mortgage.

The wider banking relationship can influence the mortgage

As borrowing moves further into private banking territory, the mortgage is increasingly likely to be considered as part of a broader financial relationship.

The scale of that relationship can be important. A client looking to borrow £5 million while also placing a substantial investment portfolio with a private bank may be viewed differently from someone seeking the same mortgage as a standalone transaction.

Depending on the bank, the relationship might include investments under management, cash deposits, business banking, foreign exchange requirements or lending against other assets. For particularly substantial clients, it may extend across several members of a family or involve trusts, companies and family office structures.

This can influence the mortgage options available. A bank may have greater appetite for a particular loan size, loan-to-value or more complex structure where the mortgage forms part of a significant wider relationship.

Different private banks also value different types of relationships. The same client and the same mortgage can therefore produce quite different propositions depending on how each bank views the wider opportunity.

At this end of the market, understanding the size and nature of the potential banking relationship can be just as important as understanding the mortgage itself.

The role of an experienced high-value mortgage broker

As loan sizes increase, identifying lenders capable of providing the required mortgage is only the starting point.

An experienced high-value mortgage broker needs to understand which lenders have a genuine appetite for the client, the property and the proposed structure. At the private banking level, that also means understanding how different banks view the wider relationship and where a client's assets and banking requirements may strengthen the proposition.

Published lending criteria become less useful as borrowing becomes more bespoke. Two banks may both be capable of lending £5 million, but one may be significantly more appropriate because it values the client's investment assets, business interests or broader banking requirements more highly.

Relationships with lenders matter too. Being able to discuss a case with private bankers, specialist lending teams and credit decision-makers before a formal application can help establish how a bank is likely to view the transaction and where there may be flexibility in its structure.

The role of the broker is therefore broader than sourcing a mortgage. It is to understand the client's overall position, identify the lenders most likely to value the opportunity and consider the mortgage in the context of the wider banking relationship.

Just as importantly, the mortgage may represent the beginning of a long and comprehensive relationship between the client and the bank. Investments, deposits, business interests, foreign exchange, future borrowing and the financial requirements of the wider family may all become relevant over time.

A high-value mortgage broker can therefore play an important role at the very start of that relationship, helping the client choose not simply the bank offering the most attractive mortgage today, but the institution best suited to their wider and longer-term requirements.

At this level, choosing the right banking relationship can be every bit as important as choosing the right mortgage.

Bigger doesn't necessarily mean more difficult

A £5 million mortgage isn't automatically harder to arrange than a £1 million mortgage.

In fact, a £5 million application from someone with £20 million of liquid assets may present a lender with fewer concerns than a £1 million application from someone stretching conventional affordability to its limit.

What changes as mortgage values increase is the market in which the application needs to be placed.

At £1 million, mainstream lending may still provide plenty of options. Around £2 million, specialist high-value lenders and private banks become increasingly important. At £5 million and above, bespoke underwriting, the client's wider financial position and the potential banking relationship are much more likely to drive the conversation.

The numbers get bigger, but the more important change is the way lenders assess the client, the risk and the wider relationship.