Residential Property Focus

Residential Property Focus 2015 Issue 2
Debt In The Prime Markets

24 June 2015, by Sophie Chick

Will mortgage reform affect the prime housing markets?


One of the distinguishing features of the prime housing markets is the extent to which they are driven by flows of equity rather than mortgage debt. Our analysis shows that across these markets 54% of buyers acquire their property with no debt whatsoever, with a further 25% taking a mortgage of less than 50% of the value of their property.

click image below to enlarge


Use of cash and mortgage debt in the prime markets

Figure 7

Source: Savills Research                                                                                                                                 LTV = Loan-to-value   

This would indicate that of the average of £31.5bn spent on property worth over £1m in the period 2011-13 across the UK, £6.2bn was funded by borrowing.

Typically, the higher up the value scale the less the reliance on mortgage debt, with two thirds of buyers in the £2m+ market buying solely with cash. In the global equity magnet that is Central London only one quarter of buyers of prime housing use a mortgage.

It is typically the younger buyers, working their way up the prime housing ladder, who are most reliant on mortgage finance. So, for example, buyers in their 30s and 40s make up 82% of all mortgaged buyers in the prime market but just over half of all cash buyers. That means the use of debt is greatest in the wealth corridors running north and south west out of London and the prime suburban markets, as younger homeowners move out in order to upsize.

By contrast further out into the commuter zone buyers will often import the equity they have accumulated in the London market, while beyond these areas the level of debt needed falls further as older buyers who have paid down more of their debt become more dominant.

Therefore, while the regulation of the mortgage markets is less relevant to the prime as opposed to mainstream market, it is still likely to have an influence. In particular, it is likely to be a catalyst for buyers who might previously have bought in the well-established parts of London either to look to emerging prime markets or to those in commuter towns, as they seek to make the debt they are able to secure stretch further and minimise the extent to which stamp duty eats into their equity.


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