London’s Risky Mortgages: Where Lenders Are Betting Big

The Epicenter of High-Risk Mortgages

In the world of mortgage lending, London continues to shine as a hotspot for high-risk mortgages. Last year, UK lenders extended a staggering £30.6 billion in high-risk mortgages, defined as those exceeding 4.5 times the borrower’s earnings. Of this colossal sum, £6.8 billion was exclusively earmarked for London post codes . Notably, the only postcode outside London that made it to the Top 20 was Maidenhead (SL6).

Wandsworth Leads the Pack

Within London’s high-stakes mortgage landscape, the SW and SE postcodes have emerged as lenders’ favorites. Topping the charts was Wandsworth (SW18), where an astonishing £232 million worth of new risky mortgages were written in the past year. In fact, the entire Top 5 list comprises southwest London neighborhoods, with Battersea (SW11), Wimbledon (SW19), Fulham (SW6), and Tooting (SW17) following closely behind.

The Concerns and Calculations

These staggering numbers have raised concerns, with experts at Mazars suggesting that mortgage lenders might be concentrating an excessive amount of risk within a relatively small geographic area. Rising interest rates and inflation are putting the squeeze on household finances, posing a looming risk of increased mortgage arrears and potential repossessions. These adverse outcomes could disproportionately affect the “riskiest” borrowers.

Lender’s Perspective

Mortgage lenders, however, remain optimistic about their strategic choice. They believe that properties in the south west and south east London areas will remain saleable even in worst-case scenarios that might lead to repossessions. Paul Rouse, Partner at Mazars, notes that the demand for properties in these regions is expected to be less affected by economic downturns compared to other areas.

The Uncertain Road Ahead

As Paul Rouse points out, “Mortgage lenders have to make a very careful judgment over where they write the riskiest loans in their loan books.” For now, they seem to see south London as a sensible choice. Yet, only time will reveal the true outcome. Rouse adds, “Hopefully, the concentration of such a large amount of lending to their most highly geared customers in an area about 20 miles wide will only get challenged by the bank’s own stress testing.”

Weathering the Storm

In the midst of potential turbulence in the housing market, mortgage lenders will be closely monitoring their loan books, hoping they are well-prepared to withstand defaults. With areas like Wandsworth, Wimbledon, and Battersea considered attractive to homebuyers even in the toughest market conditions, lenders remain cautiously optimistic about the risks they’ve taken.