£1 million mortgage – What are the repayments?

The property market is ever-changing in line with the economy, and as prices generally rise faster than wages, many find they’re forced to take out mortgages for ever higher amounts. In 2014, the average mortgage amount in the UK was £140,000; ten years later, in 2024, it’s between £180,000 to £190,000. However, in some high-cost areas like London, you can easily see mortgage amounts reach well in excess of £1,000,000.

This leads many to ask what the likely monthly repayments of such a sum would be, including how much interest would be due. In this guide, When the Bank Says No will outline what a £1 million mortgage will consist of, including how the interest is calculated, ways in which to reduce it, plus other important advice.

Breaking down a £1 million mortgage

The repayment amount will depend on mortgage length and what type of mortgage you have:

• Repayment mortgage – A repayment mortgage is the most common kind, splitting the monthly amounts between the principal and the interest.
• Interest only – An interest-only mortgage consists of paying back only the interest, which is calculated against the principal.

The following are calculations of how much £1 million mortgages will cost monthly based on a range of interest rates:

As you can see, interest rates at this massive principal will result in a very close gap in monthly payments between both mortgage types. The difference is that the repayment mortgage will lower the interest, and the payments, over time as the principal shrinks.

How is interest on 1 million pound mortgages calculated?

Interest rates in the UK vary significantly depending on the lenders, the mortgage property and the borrower’s finances. Interest rates have risen in recent years, prompted by the Bank of England’s efforts to control inflation.

Aside from mortgage types, there are also interest types:

• Fixed-rate – Fixed-rate interest typically lasts two to ten years. This gives stability, ensuring that you know what your interest rates will be throughout the period, withstanding upticks in monthly interest. That being said, the opposite is true, with any falls in interest rates being inaccessible to you.
• Variable rate – Variable rate mortgages have interest rates that fluctuate over time based on a benchmark set by either the lenders themselves, or other entities such as the Bank of England. Compared to a fixed-rate mortgage, these types of mortgages offer lower initial interest rates than fixed rates.

The interest is calculated through a simple equation, Interest = Principal x Interest Rate x Time. As the principal decreases through regular payments, so does the interest paid.

£1 million mortgage – Savings accounts and interest rates

Understanding the relationship between mortgage interest rates and saving account interest rates is highly beneficial, as it can help offset the high interest that naturally comes with a principal as large as £1 million.

• Savings accounts as a financial cushion – To maintain your savings account is an essential duty whilst dealing with a large mortgage. Keeping emergency funds in your savings account means you have liquidity to cover unexpected expenses or temporary income loss – meaning you will have funds to deal with mortgage payments in emergencies.
• Compare interest – Mortgage interest rates are typically higher than savings interest. In 2024, the mortgage typically range between 4% and 6% depending on products and lenders. That being said, if you have a high-interest savings account, you can expect to only pay between 3% and 5%. If your savings interest is lower than your mortgage rate, then it may be more beneficial to use the excess funds to pay down your mortgage.
• Offsetting mortgages – An offset mortgage allows you to pair your savings accounts with your mortgage. This means that the balance from the savings account is subtracted from the mortgage balance before calculating interest. This means you bypass lowering the principal, benefiting from lower interest rates.
• Investment vs mortgage repayment – Some homeowners prefer higher-return opportunities rather than paying down the mortgage, relying on earning a return on investments that exceed the mortgage interest rate. This is, of course, risky. Furthermore, it’s important to remember that you have to pay tax on interest earned from your savings account. There is a certain amount that is tax-free under your Personal Savings Allowance (PSA), but this has to be taken into account.
• Advantageous inflation – Inflation is something that happens over time, and if you’re aware of how it works, you can take advantage of it by paying “cheaper” money. What we mean by this is as inflation increases property value over the years, your contract will not rise with inflation, as it’s become a formal agreement. This means that you will effectively be paying much less than the property’s actual value over a period if you time it correctly.
• Interest rate fluctuations – Variable rate mortgages are often tied to the Bank of England’s base rate, as banks across England borrow money at this rate from the central bank. Bear this in mind when choosing between a fixed rate and a variable rate. If the base rate of your variable interest goes up, your monthly costs go up too, and if it goes down, your fixed-rate mortgage won’t benefit from the drop.

Tax implications of a £1 million mortgage

Dealing with a mortgage worth £1 million can be scary, especially when it comes to taxes.

• Interest payments and implications – As we’ve already pointed out, interest payments are substantial for a 1 million pound mortgage. The payments, however, are not tax-deductible unless the property is being used to generate rental income. In that case, interest on the mortgage is deducted from rental income before calculating taxable income.
• Savings interest and taxation – As we’ve mentioned before, interest earned on savings is subject to income tax, but a portion of the interest is tax-free. Basic rate taxpayers can earn £1,000 in interest tax-free, those paying tax at a higher rate means earning £500. Savings accounts typically offer compound interest, meaning the interest earned is added to the principal. This results in more interest being earned over time.
• Private banks and building societies – Individuals with high net worth may consider working with private banks. These institutions offer tailored financial services, such as bespoke mortgage products and unique investment opportunities. These may offer higher returns when compared to a traditional savings account. Building societies, on the other hand, are members owned, and often offer competitive interest rates on both savings and mortgages.
• Investment strategies and mortgage management – Unless you have a massive amount of capital, managing your debt and growing your wealth whilst being responsible for paying back such a large sum is hard. Making proper investments in equities, bonds and real estate can potentially offer high returns. If your investment returns are expected to beat the mortgage interest rate, many financial experts would advise you to take the excess and invest wisely. Seek help from financial advisers and have them bring some clarity to your financial goals and investment opportunities, as they can be risky.

Can I get a £1 million mortgage with adverse credit?

Yes, it’s possible. However, there is much to take into consideration.

• Higher interest rate – Lenders typically charge a higher interest rate on applicants with a poor credit history, because they see these borrowers as a risk. A borrower with standard risk would get an interest rate of around 3.5% to 4.5%, whilst adverse credit holders would see rates between 5% and 8%.
  • A mortgage broker could help you compare different offers to find the most competitive rates amongst specialist lenders. We have a network of lenders that would be of great difficulty to find a layman that we can contact to find these deals. Even if the interest rates were not reduced, we could still find one that would save you expenses in the long run.
• Larger deposit requirements – Lenders prefer to take higher deposits for borrowers with adverse credit. These deposits often range from 25% to 30% (around £250,000 to £300,000), a huge distance from the 10% to 20% deposit typically required.
  • When the Bank Says No can advise on how to optimise your deposit to meet lender needs whilst also keeping some for yourself. Still, sometimes paying a high deposit is a good thing. After all, it drops the principal to much more manageable levels, meaning you won’t have to pay as much interest throughout your contract.
• Limited lender options – Not all lenders are willing to make offers to those with adverse credit, especially across mainstream banks. As a result, you may need to opt for a specialist lender.
  • When the Bank Says No specialises in specialist lenders, meaning our contacts consist of a network of alternative options.
• Longer application process – Going through a mortgage application whilst having adverse credit will likely take longer than a borrower with standard credit. They also may require more evidence through extensive documentation detailing proof of income, financial statements and explanations for past credit issues.
  • This reason, perhaps more than any, is why you should opt for a mortgage broker. When the Bank Says No has expert brokers that can help gather, present and explain data that would otherwise raise the eyebrow of lenders during risk assessment.

The best way to get a £1 million mortgage is to show a good credit history. If you have adverse credit, consider methods to improve your credit through the following ways:

• Obtain credit report – Obtain your credit report and analyse it to correct errors that may be negatively affecting your score.
• Pay bills on time – Payment history influences your credit a lot. Ensure that you’re always prioritising paying your bills and monthly debits.
• Reduce outstanding debt – Work hard to reduce your debt. For example, your credit card balances should be paid down below 30% of your credit limit. Try not to close credit card accounts, however, as this can reduce your credit limit and harm your ratio.

Conclusion – Best practice for high-value mortgages

Overall, a mortgage loan of a million pounds isn’t anything to sneeze at. But at the same time, those who take on mortgages of this size have enough money to make smart investments that will offset a good portion of the monthly payments.

Nonetheless, the single best piece of advice any potential homeowner should take is to always consult a mortgage broker. Here at When the Bank Says No, we offer solutions via both mainstream and specialist lenders. Not only this, but in mortgage negotiations, we act to get you the best deal possible with your current circumstances.