More banks in the U.S. are approving multi-million dollar mortgage loans to wealthy buyers as rates remain at record lows, according to some news reports.
Citing data from the property intelligence firm CoreLogic, Bloomberg reports that banks have approved more than 15,000 mortgage loans ranging from $1 million to $10 million in the second quarter of 2014. The applications came from wealthy Americans who wanted to fund single-family home purchases.
Experts say that the wealthy buyers are taking advantage of the record low mortgage rates and want to cash in on the luxury real estate markets where prices are currently lucrative. Inventory in the upscale property market is relatively higher because these properties are snapped up by a small pool of rich investors. Therefore, prices have been reasonable.
And now, these investors are strategically borrowing to fund their purchases.
"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," Erin Gorman, managing director at Bank of New York Mellon Corp., told the agency.
A previous study conducted by Redfin found that luxury home sales were steady across the United States in the first quarter of 2014. According to the report, home sales of the 1 percent - constituting the priciest residences in America - have surged 21.1 percent since January 2014 and 35.7 percent as compared with last year's.
Mortgage rates have also been steady from the past two weeks. According to Freddie Mac's last week's survey, the average 30-year-fixed mortgage rates remained unchanged from last week's 4.13 percent. Last year during this time, the rate was 4.31 percent.
The average 15-year-fixed mortgage rates went up 0.6 percentage points to 3.26 percent from last week's 3.23 percent. It averaged 3.39 percent at the same time, last year.
The five-year adjustable mortgage rate averaged 2.99 percent, higher than the 2.97 percent last week. The rate was 3.16 percent a year ago.
The average one-year treasury-indexed adjustable mortgage rate was frozen at 2.39 percent, unaltered since last week.
Since the rates have been at record lows, it has become easier for the rich to obtain mortgages. However, first-time home buyers are still struggling to qualify for a home loan as their credit scores are low. A weak wage report adds to the under-performance of the first-time home buyers.
Experts say tax concessions and easing the whole mortgage application process could help boost affordability in the first-time home buyers segment. Also, with the U.S. employment scenario picking up, incomes are bound to increase and therefore, the market could see more activity from the young buyers.
