“The high-risk mortgage bubble has continued to grow,” warns accountancy firm Moore Stephens, with another 71,273 mortgages viewed as “risky” by the Bank of England being taken out in the UK during 2015 (that’s the latest available data).
Anything lent at more than 4.5 times annual salary falls into the BoE’s “risky” business definition, with these borrowers coming at a much higher risk of default and possible repossession.
Historically low interest rates mean that some homeowners are “being lulled into a false sense of security,” with (inevitable) future rate rises having the potential to wreak havoc on household finances for those with variable-rate mortgages or short-term fixes.
Six out of the top ten areas that took out the highest numbers of risky mortgages in the last year were in south west London, according to Moore Stevens’ delvings. Wandsworth (1st), Wimbledon (5th), and Clapham (6th) all come in amongst the national hotspots out of 1,567 areas. Of the top 20 locations for high-risk mortgages, the majority were in Greater London, joined by Brighton & Hove outside the capital.
London’s well-documented house price inflation is probably to blame for the preponderance of heigh-stakes borrowing. With salaries failing to keep pace with property values, buyers are having to over-extend their finances to get in on the action.
Top 20 areas with the highest number of new “risky” mortgages
|Rank||Area||Number of ‘risky’ mortgages taken out in the last year|
|Number of ‘risky’ mortgages taken out in the Top 20 areas||4,569|
|Total Number of ‘risky’ mortgages taken out in the UK||71,273|
Jeremy Willmont, Head of Restructuring & Insolvency at Moore Stephens: “Despite preventative measures being put in place to calm the market, homeowners taking on too much risk with their mortgages is still a real problem.
“Homeowners might be becoming too comfortable with the low interest rates at the moment.
“Some homeowners are stretched even with interest rates at their current record low, so an increase of just half a percentage point would represent a significant relative jump in mortgage repayments. Rising interest rates carry the ultimate threat of bankruptcy for overstretched borrowers.
“Young professionals are overstretching themselves to buy homes in new London hotspots such as Brixton and Clapham. Too many ignore the possibility of a decline in house prices or that their salaries will not rise faster than inflation.
“Homeowners with demanding mortgage repayments need their salaries to keep up with any potential interest rate increases – otherwise repossession and insolvency become real dangers.
“The Bank of England will be keeping an eye on these figures and might be concerned – particularly after they brought in measures to try to control risky lending in 2014.”