A recent analysis conducted by Mazars has unveiled that London leads the pack when it comes to postcodes with the highest concentration of “risky mortgages” in the United Kingdom. The report reveals that a staggering 19 out of the top 20 postcodes with such high-risk mortgages are situated within the boundaries of the UK’s capital city.
The Bank of England defines “risky mortgages” as loans where the borrowed amount exceeds 4.5 times the borrower’s annual earnings. London’s dominance in this category is striking, with the sole exception being Maidenhead, which falls within London’s commuter belt.
South West London Takes the Lead
South West London particularly stands out in this analysis, securing the top positions on the list. Wandsworth emerged at the forefront with a total of £232 million in risky mortgages, followed closely by Battersea with £198 million and Wimbledon in the third position. Fulham and Tooting also make appearances on the list.
Lender Restrictions and the Challenge of Risk Allocation
The Bank of England imposes a strict limit of 15% on a lender’s mortgage book to be composed of “risky” loans. This limitation stems from concerns that such mortgages are more susceptible to defaults. Consequently, banks and building societies are compelled to make calculated decisions regarding the allocation of these high-risk loans.
Paul Rouse, a partner at Mazars, emphasized the gravity of these decisions, stating, “Mortgage lenders must exercise extreme caution when deciding where to store the riskiest loans in their loan books, and it is evident that they consider south London to be an appropriate location. If it is true, it will only become apparent after a significant and protracted decline in the housing market.”
The London Property Market Under Scrutiny
The concentration of a significant portion of lending to highly geared customers in an area approximately 20 miles wide has raised questions about the resilience of these London postcodes in the event of a property market downturn. As interest rates rise, mortgages that constitute a substantial portion of borrowers’ earnings become increasingly vulnerable to defaults. Thus, these London postcodes may face the greatest risk should a property market crash occur.
Paul Rouse commented on this matter, saying, “With the housing market potentially facing further choppy waters in the coming months, mortgage lenders will be hoping that their loan books are well-prepared to weather some defaults.”