When the crunch first hit, most mortgage lenders shied away from certain parts of the mortgage market they perceived to be higher risk, including so-called ‘large loans’, first-time buyers, sub-prime mortgages and buy-to-let.
In recent weeks, however, some of the UK’s largest lenders seem to have switched policy and are actively looking to lend bigger mortgages to some of those clients signed up with their private banking divisions.
This month, LBG has dramatically reduced the interest rates charged on fixed-rate mortgage deals, available for Cheltenham & Gloucester customers borrowing more than £1m, by 1.9%.
Its two-year fixed rate deal for mortgages of £1m-£2m has been slashed from 5.29% to 3.99% for housebuyers with a 40% deposit, bringing it into line with rates on smaller loans.
Aaron Strutt of mortgage broker Trinity Financial Group said: “This is a significant move from C&G. The bank evidently wants to encourage wealthy borrowers. No doubt it will be looking to cross-sell other products to them.”
Brokers also report that RBS is currently approving a higher proportion of applications through its RBS Private division than via the high street.
The banks appear to be cherry-picking their wealthier clients in order to meet the lending targets they promised the Government prior to last month’s Budget. LBG promised net lending of £3bn and RBS £8bn.
Analysts pointed out that the margins on mortgage lending are currently higher than they have been for many years.
Steven Hayne, analyst at Morgan Stanley, said: “Whereas in 2006 and 2007 spreads [profit margins] were at 20-year lows, now they’re at 20-year highs, so if the banks can get a nice customer in the door, they are happy to lend to them.”
Barclays is another lender also offering lower rates and flexible lending criteria to encourage higher-income borrowers, including first-time buyers with small deposits, via its Barclays Wealth division.
Simon Gammon of broker Knight Frank Finance, said: “For a very good client I can arrange a mortgage at 1.25% above Bank rate with the private banking arm of a high street lender. For first-time buyers or those wanting more than 80% borrowing, the margin could be three times as much through the retail bank.”
