High-flyers trot all the way to the bank

The booming property market means that mortgage repayments as high as £5,000 a month for private homes are not uncommon. Many of the homes which have made the headlines over the past year have been bought by Dublin's professional classes and not by pop stars or Lotto winners, as many might have imagined.

These homes beside Herbert Park, in Dartry, Killiney and even Mount Merrion are being lived in by Dublin's professional classes but often at a huge cost.

The massive escalation in house prices at the top end of the market has far outstripped most people's salaries - but a combination of a profession and substantial investment income means the big money houses are still affordable for a minority.

The banks are seeing applications for mortgages of £500,000 or £750,000 and more, and are granting them with relative ease.

Once it was assumed that anyone buying a £1 million home, would have at least £600,000 to put down but that is no longer the case. Some of these homes are even being bought with 90 per cent mortgages as the prices rise inexorably upwards.

Banking insiders say mortgages of three quarters of a million are now almost commonplace. Most people taking these large mortgages work as company directors, medical consultants and senior counsel, as well as accountants and engineers.

The one thing nearly all have in common is a lot of income from a variety of sources but almost invariably a lot from investment property.

At the moment, the repayments on a £750,000 mortgage would be around £5,200 and, interestingly, many of these borrowers are choosing to leave the money at variable rates, despite their huge exposure should rates go up.

Almost none of these borrowers are young and most tend to be established medical consultants aged at least 45, or senior partners in some of the big accountancy firms of about the same age. If they are any younger, they probably made their money abroad. According to banking sources, none have a PAYE income of less than £100,000, with many earning about £200,000.

Of course, most of these loans are with the banks rather than building societies where the borrowers tend to have a track record and perhaps other loans. There is also a significant minority of these borrowers coming from abroad with large amounts of cash. One source says eurocrats have taken on huge loans in the past while some of the international companies in the IFSC and even the computer companies have provided more.

One banker questioned the size of some repayments. These people can obviously afford £5,000 a month on interest but what about the capital. Many are over 45 and will not want to have large mortgages after they retire.

But others insist that almost all people taking on the larger loans plan to have them paid off in five or at most 15 years, mostly from lump sums. "If the worst comes to the worst, they can always sell one of their investment properties," one source noted. But many are also planning to sell their businesses and even inheritances have a role to play, according to one banker.

Generally, the banks will only lend about half of a person's gross income at the upper end. That means that someone with a net income of £4,000 a month or about £90,000 would be able to borrow about £300,000, as that would be broadly a £2,000 repayment.

The issue is that many of those on higher salaries who own big houses tend to have lifestyles to match. Even the food bill can be triple that of a more modest familys' and cars and holidays take up large chunks of cash too. The other problem is that most of these buyers are looking at the value of their property going up, but as one source said, you cannot take a few bricks from the house to pay off the loan.

All is fine when the economy is going well, but if a downturn comes, some of these people could go out of business and so could the tenants in their commercial properties. Where that would leave the banks in terms of exposure is anyone's guess.