Now a millionaire doesn’t necessarily have to have £1 million in the bank. It’s possible to be considered a millionaire if you own assets like a house/yacht/racehorse that are worth a million or so.
Owning a house worth £1 million or more with a mortgage of £750,000 doesn’t technically make you a millionaire until the mortgage is paid off or the house goes up in value and the mortgage goes down.
And when a house already worth £1 million or more goes up in value, it does so by the same percentage as the average house (roughly speaking) so the increase is more significant.
£100,000 house goes up 10% = £110,000 (+ £10,000)
£1,000,000 goes up 10% = £1,100,000 (+£100,000)
Keep a £1 million house for 25 years and based on the average house price increase from 1975 to 2000 the value could increase by 104% (http://www.housepricecrash.co.uk/graphs-average-house-price.php) making it worth £2,040,000.
If the mortgage was a 25 year repayment mortgage you’d then be in a position to downsize to a £1,000,000 house and have £1,040,000 in the bank.
If the mortgage was interest only then you’d still be able to buy the £1,000,000 house outright but without the money in the bank.
But buying a house worth more than £1 million with a mortgage above £500,000 often puts the buyer outside the mainstream criteria and into the hands of specialist teams and lenders.
Which is actually a good thing!
It makes finding a lender a little more tricky in the first place but the actual deals and offers available are actually pretty good! In fact, in some cases even better than the high street and with more favourable terms.
Compare one example I was recently discussing with the next best mainstream offer (rates subject to change!):
The scenario, 80% Loan to Value, interest only, tracker with no early repayment penalties.
Mainstream (High Street), for a customer at 80% LTV remortgaging at £100,000
= No trackers, just a 5.99% variable from Shepshed Building Society and only available if you live in Leicestershire (LE), Derbyshire (DE) and Nottinghamshire (NG).
Specialist, for a customer at 80% LTV remortgaging at £1,000,000
= Tracker at BBR (0.5%) + 2.25% = 2.75% for 5 years with no redemption penalties.
So specialist brokers who use lesser known lenders can get access to some extremely good rates and offers for mortgages over £1 million at high LTV’s where mainstream lenders are reluctant to venture.
Some compensation perhaps, now the 50% income tax rate is in effect! (If your income is PAYE that is…)
The fact that rates and offers are available for this niche makes you wonder why the same isn’t available for everyone?
Surely risk is still risk?
Or perhaps it’s because the lenders who can offer such deals aren’t the ones who are still reeling from the affects of toxic debt and irresponsible lending policies…