The UK property market has been defying gravity for some years now.
Last week the statistic of note was that £1 billion of mortgages are being written every seven days, this week it’s that there are a record 1,000 homes in London priced at £2 million or more.
The knock-on statistic from the latter is that the debt capacity of many people, in this instance at the top end of the market, seemingly has no limits with some home buyers taking out mortgages in excess of £1 million, or up to ten times their income.
For anyone who watches the Discovery Channel will probably note; there are a series of programs with a ‘mega’ theme to them – Mega-Structures and Mega-Disasters etc.
A new show for Rupert and his friends at Foxtel could be Mega-Mortgages…
Ok, so while these so-called mega-mortgages in the UK are the exception, they highlight the rising gap between endlessly higher house prices and incomes occurring around the country.
If this phenomenon is combined with the more flexible lending criteria in the market today, it’s not difficult to understand why more homebuyers are taking out much greater mortgages than the historical norm.
With people either banking on the market continuing to rise, wanting to upgrade or in extreme circumstances, just wanting to get their foot onto the crazy London property ladder, many are taking out mortgages in excess of £500,000
However, despite the rise of mega-mortgages in some parts of the UK, the Council of Mortgage Lenders (CML) points to most homebuyers, especially first-time buyers, tend to take out fixed-rate mortgages and are therefore temporarily protected from an immediate rate rise.
While the average mortgage of homebuyers stands at £125,000, according to the CML, there has been a two fold rise in the number of mortgages being taken out for more than £500,000 in the past year.
The interest alone on a £1m mortgage is approximately £4,000 a month at current rates, or £50,000 a year.
A mere one per cent increase in mortgage rates would add almost £1,000 to the monthly interest payment on such a loan.
Suggestions in the UK last week were that interest rates may have to rise again before June – a sobering thought for many it would seem?
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