£If anyone has a giant mortgage in London now, it’s the person six years or more into a career in banking. While other professions were forced to rent, vice president (VP) level bankers could still afford to buy into London’s crazily expensive housing market at the top. Many are now highly indebted as a result. Do they mind, then, that the Bank of England’s Monetary Policy Committee has voted to raise rates for the first time in over a decade? Not really.
“My mortgage is £400k, but I’m not really bothered about the rate rise,” says one VP in Deutsche Bank’s markets business, “- 25 bps doesn’t change anything. It’s only £80 a month once it kicks in and I’m on a fixed rate for two years anyway. “A credit trader at J.P. Morgan says he has a £400k mortgage and is also, “not bothered”. A VP-level technologist at J.P. Morgan is similarly sanguine. “My mortgage is £450k,” he tells us. “I’m not that apprehensive about rising rates – I don’t think they’ll go up much more given the state of the economy and the dangers of Brexit, although I’ll probably struggle if they go up more than 2%.”
The potential curse of massive mortgages and minimal housing equity mostly afflicts bankers in their late 20s and early 30s. Below this, most young bankers rent. Above this, most people in banking bought houses long enough ago to have amassed an equity cushion thanks to price rises, although some have mortgages on more than one property. “Loads of older technologists are landlords,” says the J.P. Morgan VP. “People start with a one or two bed flat in zone two or three. Then they move to a house further out. Then they buy some rental properties too.”
In theory, finance professionals should be well placed to manage themselves in the housing market. In reality, this isn’t always so. The unpredictability of bonuses means there was a historic tendency for people in finance to take out interest only mortgages. Pre-2008 many bankers levered-up as much as possible. Mortgage lenders remain hesitant to lend on the basis of total compensation (rather than salary alone), with the result that employees say J.P. Morgan runs monthly “mortgage surgeries” to help its junior employees find lenders sympathetic to their needs.
The more sensible 20-something bankers were prepared for today’s hike in rates. “I have a mortgage, but I’ve been quite prudent and over-equitized over the last couple of years,” says a VP in Deutsche’s investment banking division. “My loan to value is now below 60% and I have a fixed rate for another two years,” he adds, saying that most of his colleagues in finance have mortgages in excess of £400k and will, “clearly pay a bit more if they need to refinance today”.
While some bankers could suffer from rising rates, however, plenty won’t. A surprising number of the VP-level bankers we spoke to are renting. Although their rents may yet rise as landlords refinance, they also remain on the sidelines ready to buy if house prices fall. “It’s the middle and upper middle class people here who bought houses,” says one J.P. Morgan employee. “Most of them relied upon the bank of mum and dad for their deposits. Other people couldn’t afford it.”