A recent analysis conducted by Mazars has shed light on the distribution of “risky” mortgages across different postcodes in the UK.
These risky mortgages, as defined by the Bank of England, are those where the loan amount is at least 4.5 times the borrower’s earnings.
Notably, 19 out of the top 20 postcodes with the highest concentration of such risky mortgages are located in London.
Maidenhead: The Lone Exception
Interestingly, the only postcode outside of London to make it into the top 20 list was Maidenhead, which is still within the London commuter belt.
This underscores the prevalence of these high-risk mortgage arrangements within the vicinity of the UK capital.
South West London Dominates
Within London, South West London emerged as the epicenter of these risky mortgages.
The top of the list was dominated by South West London postcodes, with Wandsworth leading the pack.
In this borough, risky mortgages totaled a staggering £232 million.
Following closely behind were Battersea with £198 million in risky mortgages and Wimbledon in third place.
Fulham and Tooting also featured prominently on the list.
Bank of England’s Limitation
The Bank of England has imposed a limitation, allowing only a maximum of 15% of a lender’s mortgage book to consist of “risky” loans.
This regulation forces banks and building societies to carefully consider where to allocate this 15%.
Lenders’ Risk Assessment
Paul Rouse, a partner at Mazars, commented on this situation, noting that mortgage lenders must make judicious decisions regarding where to write these riskier loans in their portfolios.
He observed that lenders seem to favor South London as a sensible choice for such allocations, emphasizing that only a substantial and prolonged decline in the housing market will truly reveal the wisdom of this strategy.
Future Uncertainty and Market Conditions
As interest rates are expected to rise, mortgages that represent a significant portion of borrowers’ earnings could become the most vulnerable to default.
This implies that London postcodes, with their high concentrations of such mortgages, could be particularly susceptible in the event of a property market downturn.
Rouse suggests that, given the potential challenges ahead for the housing market, mortgage lenders are hoping their loan portfolios are well-prepared to withstand any defaults that may arise.
In summary, while South West London seems to be a hotspot for risky mortgages, the future remains uncertain, and lenders will be closely monitoring market conditions to assess the prudence of their lending decisions.
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