“You read about the mortgage market starting to loosen up but that is only for the sub-£1m sector,” said one broker specialising in larger mortgages. “We are turning to the private banks for funding almost 100 per cent of the time.”
This contraction of the top end of the market put those banks that were still prepared to provide a high-end mortgage in a strong position. Many were reluctant to offer a mortgage as a one-off product, preferring to see it as part of a broader package of services to high net worth clients.
“But the banks have started competing again on their lending terms for wealthy clients in the last month,” according to the broker. “Before you had to go cap in hand but now there can be three banks pitching their services as part of a beauty parade.”
“The retail banks and building societies appear to be more reluctant to offer private individuals mortgages in excess of £1m. Investec has always focused in this market and we have seen a substantial increase in the number of enquiries from high net worth individuals who are keen to get back on the property ladder,” said David Knott, Investec Specialist Private Bank.
Cautious economic forecasters warn of the possibility of a double-dip recession, which could send property and other asset prices tumbling again. But the view among many property experts is that the London market has bottomed out and that demand that was frozen during the worst months of the credit crisis is now starting to come through.
The net balance of surveyors reporting rising rather than falling prices over the previous three months rose to a 16-month high of 22 per cent in September, according to the latest Royal Institution of Chartered Surveyors national market survey. The number of new enquiries to estate agents dipped slightly in September but was still one of the highest in the survey’s history.
But the supply side remains a problem. The net balance of surveyors reporting an increase in new instructions to sell a property remained positive in September but fell to just 4 per cent from 12 per cent the month before. Vendors hanging on for a better price are making for a less liquid property market.
An important reason for the rise in demand appears to be a growing confidence among people in the financial sector that the worst of the job losses are over. The strong profit performance of several large investment banks has shown they can make money even in today’s uncertain markets. Even better, for their senior employees, bonus pools are being replenished.
Goldman Sachs, with 5,500 London staff, has set aside $5.4bn for worldwide compensation and benefits in the third quarter. The bank looks set to hand out total bonuses this year that will match the record amounts paid in 2007.
City-based financial institutions are expected to increase bonus payments by 50 per cent to £6bn for 2009, according to the Centre for Economics and Business Research. This will still be lower than the £10.2bn paid in 2007 but fewer people now work in the City and the early months of 2009 were tough for the banks, the centre said.
The bonuses paid by the financial sector have attracted the attention of governments and regulators. The G20 group of leading industrial nations has adopted a set of principles aimed at aligning compensation with the creation of long-term value. It is opposed to multi-year guaranteed bonuses and wants variable compensation to be deferred, tied to performance and subject to claw-back. National governments are translating these principles into local regulation.
City professionals do not seem to be deterred by these uncertainties and demand for high-end mortgages has increased, according to brokers and lenders. The traditional London districts of Knightsbridge, Chelsea, Hampstead and Fulham remain popular while the “stockbroker belt” is also in demand. Virginia Water is among the Surrey favourites, as is St George’s Hill, a private estate in Weybridge that was formerly home to John Lennon and Jenson Button, the new Formula One champion.
