Mega mortgages hit the North: Spike in £500,000-plus loans in the regions as they fall in London

The number of half a million pound mortgages on properties outside southern England has surged in the last five years as Britons stretch their borrowing to afford their dream home. 

Once a strictly London phenomenon, mortgages worth £500,000 or more issued outside the capital and wider South East went up by 18 per cent since 2021 according to estate agent Savills. 

With the usual deposit requirement at 5 per cent of the purchase price, it reveals a rise in the amount of homes being sold for £550,000 or more. 

One in every 17 mortgages in Britain was for more than £500,000 last year, the estate agent said. 

The high cost of moving, including stamp duty, and the trend towards getting on the ladder later in life have prompted some buyers to eschew starter homes and move straight into a large family property – maxing out their borrowing power in the process. 

The average home in Britain is worth £273,000, according to latest Office for National Statistics (ONS) figures.

It increased by just 0.9 per cent in the 12 months to August, down from 1.2 per cent growth in the 12 months to July. 

While house prices are flatlining at the moment, substantial growth over many years means prices remain high compared to wages and this requires borrowers to take out bigger mortgages as they move up the ladder. 

Savills' analysis, based on Financial Conduct Authority (FCA) data, reveals that while London remains the biggest market for £500,000-plus mortgages at 42 per cent of the total, the number handed out has fallen by 2.4 per cent since 2021. 

It also fell by 2.3 per cent in the South East. 

This could be because house prices have fallen recently in more expensive areas, taking prices below that level. 

It could also be because the property market is sluggish, resulting in fewer transactions overall. 

Meanwhile, £500,000-plus mortgages have increased by 17 per cent in the Midlands, 16 per cent in the North of England and 28 per cent across Scotland, Wales and Northern Ireland during the same time. 

Such regions have also seen stronger house price growth over recent years as they are more affordable, while the market in London and its surrounds has lagged behind. 

For example, today's ONS data shows that house prices rose by 3.2 per cent in the North East in the year to August, and 2.2 per cent in the North West. 

This was compared to a fall of 2.2 per cent in London and 0.8 per cent in the South East. 

Last year alone, a total of 62,391 mortgages of £500,000 or more were issued, accounting for 5.8 per cent of all mortgage lending. 

Lucian Cook, head of residential research at Savills, said: 'The half-million-pound mortgage is no longer solely the preserve of buyers in London and the South East. 

'Growth over the past five years has increasingly come from elsewhere in the country as rising house prices and accumulated housing equity have enabled more households to take on larger loans.'

As well as high house prices, the rise of big borrowing has also been stoked by looser lender rules. 

Last year, many lenders lowered their 'stress rates' – the hypothetical higher interest rates they test borrowers' finances against when they apply for a mortgage or remortgage. 

This means banks were more likely to conclude that they could afford higher repayments and therefore bigger mortgages.  

It happened in response to guidance from watchdog the FCA, which said that lenders should make sure they are not 'unduly restricting access to otherwise affordable mortgages'.

In addition, then-Chancellor Rachel Reeves loosened financial regulations so that lenders could offer more, larger home loans.

Previously, a rule introduced after the financial crisis meant loans of more than 4.5 times the borrower's annual income could only make up 15 per cent of a bank's mortgage book.

But now, many lenders offer certain borrowers the opportunity to borrow six times their income and sometimes even beyond.  

Cook added: 'Despite higher borrowing costs, greater flexibility in affordability stress testing has helped more higher-earning households access mortgages of £500,000 and above.'