In the aftermath of the subprime mortgage crisis, you'd have thought lenders had learned their lessons - but perhaps not, after a new study suggested the number of risky mortgages sold in the UK has risen 64 per cent since 2010.
Using last year’s data from the Bank of England, Moore Stevens, an accountancy firm, has calculated that 325,636 of the mortgages sold in the UK in the last five years represented more than 4.5 times the buyer’s salary - which means, the Bank suggests, borrowers are “more likely to encounter payment difficulties in the face of shocks to income and interest rates”.
Last April, the Bank imposed rules to limit risky lending, saying that no more than 15 per cent of mortgages granted by a lender in a given area can exceed the 4.5 per cent boundary.
The "SE" postcode, in south-east London, had the greatest increase in risky mortgage lending: the number of risky mortgages granted in 2014 was 172 per cent of the number granted in 2010. The raw number rose from 1,211 in 2010 to 3,292 in 2014.
East London wasn’t far behind – the total there rose 150 per cent from 1,080 in 2010 to 2,702 in 2014.
Jeremy Willmont, head of restructuring and insolvency at Moore Stephens says:
Hundreds of thousands of families have, in the view of the Bank of England, stretched themselves too far to buy a home.
Nearly nine per cent of mortgages taken out in 2014 were classed as ‘risky’. This is up from just over seven per cent in 2013 and less than six per cent in 2010. Considering the Bank of England designed the Mortgage Market Review to throw sand in the engine of the market, this is an alarming trend.
Perhaps it is the expectation that interest rates will stay low for some time that is encouraging this risk hungry attitude amongst homeowners. The increase in the size of repayments that many will face will lead to some of those people struggling, and failing, to meet their obligations. If increasing numbers of borrowers continue to take out mortgages at these high loan to income ratios then the housing market could be storing up problems for the future.