Banks are handing out mortgages of as much as $10 million to the wealthy in record numbers while first-time home buyers struggle to get loans. Wealthy borrowers are having an easier time getting a mortgage, with banks issuing a record number of mortgages in excess of $1 million while continuing to keep lending tight for first-time home buyers, Bloomberg News reports.
These high-net-worth borrowers do act differently than first-time buyers, who borrow because they have to. High-net-worth borrowers don’t have to borrow. They choose to, so they’re very strategic about what, why, and when they borrow. The wealthy are choosing to borrow while mortgage rates are still low, with some fetching mortgage rates as low as 3.15 percent for a seven-year adjustable-rate mortgage. By choosing to finance, the wealthy borrowers are avoiding having to liquidate other investments to purchase the home.
In Southern California, millionaires are boosting demand for the largest loans because of an improving economy and brisk sales of luxury homes gives them confidence in the market, said Mark Cohen, a mortgage broker at lender Cohen Financial Group in Beverly Hills. Cohen, whose average loan has increased to $1 million from $800,000 this year, said he gave a $9.9 million mortgage recently to an executive at a publicly traded company in Brentwood
For wealthy home buyers of single-family homes, the number of loans from $1 million to $10 million in the 100 largest metro areas soared by more than 15,000 in the second quarter, the highest point ever, according to CoreLogic, a housing data provider.
The luxury market has been heating up in recent months. During the first half of this year, sales of homes costing at least $2 million in 30 of the biggest metro areas increased to the highest since at least 2006, CoreLogic reports. What’s more, sales of existing homes of $1 million and more rose 8.5 percent in June compared with a year ago, which was the biggest jump among all price ranges, according to the National Association of REALTORS®.