South London is the UK’s hotspot for risky mortgages

Our research has highlighted that South London has more than 6,300 mortgages written at 4.5 times the borrower’s earnings or higher in the last year.

The Bank of England guidance says mortgages are considered ‘high-risk’ if they are lent at 4.5 times the applicant’s salary or above as those with high-risk mortgages may be more likely to be unable to keep up with payments, and perhaps even default during times of financial difficulty.

Traditionally, South West London has been home to the highest concentration of risky mortgages. That risk is expanding now into South East London as more young professionals look to buy homes in ‘up and coming’ areas that are rapidly gentrifying, such as Croydon (387) and Streatham (356).

Pinpointing the riskiest localities

Wandsworth was the area with the riskiest mortgages – with 426 written at 4.5 times the borrower’s earnings in the past year, a 21% increase on last year. This places it first out of 2,763 areas of the UK for risky mortgages. Wandsworth is joined in the top ten by five other South London areas – Croydon, Streatham, Tooting, Battersea, and Wimbledon.

We believe that the number of high-risk mortgages in South London has risen as the area has benefited from money being pumped into redevelopment projects such as the Northern line extension, the £9bn Battersea Power Station redevelopment, and the redevelopment of Nine Elms including Embassy Gardens.

As developments continue, lenders expect an increasing demand for housing and are comfortable offering higher-risk mortgages to those they see as stable earners. 

Risk across the UK

As a whole, the UK has seen a rise in the total number of high-risk mortgages given out with 97221 written in 2020/21 – up from 96720 in 2019/20.* In the first quarter of 2021 high-risk mortgages made up 12.6% of all mortgages up from 11% five years ago.

South London has long been a favourite area for mortgage lenders. The Stamp Duty holiday and the boom in house purchases have led to some lenders writing more lending than ever before in the area.  However, the PRA has a limit on how much risky-mortgage lending banks can do in total for a reason.

But with interest rates expected to remain steady, some lenders continue to feel comfortable offering mortgages at high earning multiples. 

High-risk mortgages by area – South London dominates top ten

*March 31st year-end

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