PRICES of multimillion-pound homes in Central London may fall over the coming months as a result of the continuing crisis in financial markets, but demand for high-end mortgages has shown no sign of slowing.

Figures from the Council for Mortgage Lenders show that the number of mortgages of at least £500,000 has increased by 42 per cent in the past year. With prices of country homes routinely topping £2 million and some waterfront apartments in Newcastle and Cardiff selling for £1 million, this trend is set to continue – particularly as millionaires are choosing to fund their purchases through home loans rather than via their spare cash. “Even despite rising interest rates, millionaires are finding the cheapest way to buy their house is by going into debt, rather than using assets that could be earning a very high rate of interest elsewhere,” says James Cotton, of the mortgage broker London & Country.

However, although shopping for a “millionaire mortgage” usually brings five-star customer service, the best home-loan deals are frequently unavailable to high-end borrowers. “Those willing and able to commit to a home loan of £1 million or more may be surprised to find they don’t have access to the best fixed-rate deals on the market,” Cotton says.

A lack of competition among lenders is one reason for this. Many smaller banks and most building societies will not lend more than £500,000. This leaves the big names, such as Halifax and Abbey, which lend up to £7.5 million, and the Bank of Scotland, Lloyds TSB and Woolwich, which lend up to £2 million under their main brand and via a specialist in-house service for larger loans.

“All of the banks have been cutting back on their £1 million-plus mortgage rates since interest rates began rising,” says Jonathan Cornell, of the broker Hamptons International. “You can still get a mortgage for £1 million or more but you are going to have to pay a higher rate than if you were borrowing £150,000.” He adds: “Lenders have managed to keep their fixed-rate deals artificially low for smaller loans, despite rising interest rates, because they make the money back on arrangement fees, which are now more than £1,000 for some loans. But for loans of £1 million or more the strategy doesn’t work, so the interest rates tend to be higher.”

With £1 million-plus loans, finding the best interest rates will always depend on the size of the deposit that you have saved. “In theory, where the loan is under £1.5 billion you can borrow around 90 per cent of the value of the property,” says Jon Harris, of Savills Private Finance. However, there are benefits to putting more of your savings toward your mortgage. For example, Halifax offers the same rates to those borrowing £100,000 or £5 million if you have a deposit of at least 20 per cent.

Million-pound borrowers should look for flexibility, Harris says. Executives who earn £250,000 but expect bonuses of more than £1 million will need a mortgage that will let them overpay to reduce their interest costs.

“The best millionaire mortgages are ‘mix and match’. That is, part fixed-rate, part variable. The fixed rate buys security from interest rate rises while the variable portion will have no penalties at any time so you can overpay on this,” he says.

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