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Rise in riskier mortgage lending

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There's an increasing number of mortgages being lent to those with low deposits and lenders are stretching income multiples again
Rise in riskier mortgage lending

Mortgage lending is broadly stable according to figures out from the Bank of England.

The outstanding value of all mortgage loans was £1,461 billion in 2019 Q2, 3.1% higher than a year earlier.

However the value of gross mortgage advances in the last quarter 1% down on the same period last year, at £66.1 billion.

There’s little change over the year in the value of new mortgage commitments (lending agreed to be advanced in the coming months), at £73.4 billion.

Low deposit? No problem

What is striking is the changing shape of mortgage lending, with clear movement up the risk curve. The share of mortgages advanced at over 90% of the property’s value hit 5.5% of all loans, its highest level since the credit crunch (2008, Q4).

And the proportion of lending at more than four times income for a single borrower or greater than three times annual income for joint borrowers was 46.1%, up by 0.7 percentage points on the same time last year.

So, have lenders forgotten what happened 11 years ago?

Not necessarily, said Mark Gordon, director of mortgages at comparethemarket.com:
“High loan to value and loan to income lending is on the rise as an increasing number of homeowners take advantage of low interest rates and a slowdown in house price growth,” he said.

“High LTV loans should not be dismissed outright as too risky, as for many people they are their only route onto the property ladder.”

Tighter lending criteria

Following the credit crunch mortgage lenders restricted criteria and their appetite to lend, and this was further tightened by regulators seeking to protect borrowers.

Now lenders must ‘stress-test’ borrowers capability to meet their monthly repayments, both now and in the event of rising interest rates. Despite the rise in high loan-to-value and high loan-to-income mortgage lending, criteria is stricter than it was before the crunch.

Private Finance managing director Simon Checkley, told sister title Mortgage Solutions that the popularity of mortgages with higher than 90 per cent LTV had been vital in enabling those with smaller deposits to purchase their first home.

“Those concerned that borrowers might be overstretching themselves should take comfort in the fact that while high LTV products do come with a slight premium, in today’s low rate market, they’re incredibly affordable,” he said.

He added: “It’s always preferable for borrowers to opt for a product at the lowest LTV possible to secure the best rate and minimise the amount of interest repaid. However, it’s not always realistic to save a hefty deposit, so many prospective first-time buyers will be encouraged by the flurry of high LTV products that have launched onto the market, giving those otherwise locked out of homeownership their first step onto property the ladder.”

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