The share of mortgages taken out with a loan-to-value of more than 90 per cent has reached the same level as just after the financial crash, latest data has shown.
The Bank of England’s Mortgage Lenders and Administrators Statistics, published yesterday (September 10), showed about one in 20 (5.5 per cent) mortgages taken out in the three months to June had an LTV that exceeded 90 per cent.
According to the BoE, this was the highest level since 2008 and up from the 4.5 per cent measured in the previous quarter.
The financial crisis was aggravated by high loan to value and loan to income mortgages and the industry saw a drop in the level of such products available post 2008.
BoE data showed mortgages with LTVs higher than 90 per cent accounted for nearly 11 per cent of the market in the second quarter of 2007, but that had dropped to 2 per cent in the same quarter of 2009.
Between 2009 and 2014, the share of high LTV mortgages spiked above 2 per cent in only three quarters but has gradually increased over the past five years.
In June, the Bank of England’s top banking supervisor warned the bank was watching lenders "like a hawk" over their exposure to risk — through products such as high loan to value and loan to income mortgages — in the current mortgage price war.
The so-called mortgage price war slashed lenders’ profits in the first half of the year after sustained pressure on mortgage pricing resulted in a ‘race to the bottom’ in terms of rates and an expanding of criteria among most lenders.
The challenging market conditions saw Tesco Bank pull the plug on its mortgage lending arm, as its chief executive said the market had left it with “limited profitable growth opportunities”.
Dan White, director at Champion Hall & White, thought the mortgage price war was partly responsible for the increase in high LTV products.
He said: “Customers will opt for 90 and 95 per cent mortgages more partly because the rates have come down so much.
“I think lenders are more willing to lend at the level, too, although it’s more strict than it was in 2007. A consumer’s affordability and credit score have to be strong to get a 95 per cent mortgage.”
Mr White added that lending at 95 per cent LTV was acceptable as long as lenders looked after their borrowers and were willing to offer their customers new deals, rather than expensive retention rates.
But Sarah Drakard, independent financial adviser at Cruze Financial Solutions, said the high share of high LTV mortgages was “worrying” because the property market was “just not strong enough” to deal with the risks.
She added: “People forget about the financial crash. A few years ago, my first-time buyer clients didn’t want to buy a property with small deposits as they thought it wasn’t the ‘safe’ thing to do.
“But now people are perhaps struggling to save, or parents are less willing to give money in unpredictable political times, so less people are able to save for big deposits.”
The BoE findings also showed the proportion of loan balances with some arrears fell to its lowest level in 12 years, falling 1.7 per cent quarter-by-quarter to £14.2bn. According to the BoE this was the lowest level since the research began in 2007.
Mark Pilling, managing director at Spicerhaart Corporate Sales, said: “It is obviously great news that arrears are low and still falling, but that does not necessarily mean that people are not experiencing financial difficulties.
“Instead, what I think we can take from these figures is that lenders are continuing to do all they can to help borrowers who are struggling, to ensure that repossession is always the last option.”
imogen.tew@ft.com
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