More property buyers with small deposits are taking out high risk loans worth over 3.5 times their take home income
The number of residential property buyers who can only raise a small deposit of less than 10%, and who don’t qualify for the Government’s Help To Buy scheme, are taking out high risk loans worth over 3.5 times their take home income, has risen to its highest level for over five years.
New figures published by the Bank of England (BoE) show that the number of high risk mortgages being taken out by property investors and existing landlords has increased in the first three months of 2014.
Mortgage lending to new borrowers who had less than a 10% deposit and a Loan-To-Income (LTI) multiple of more than 3.5 times a single person income, or 2.75 times for joint income borrowers, has increased to 2.6%, the highest recorded figure since the last quarter of 2008.The new data from the Bank of England (BoE), follows a warning from the International Monetary Fund, (IMF), which urged the UK Government to take swift action to curb the number of high risk mortgages.
IMF Managing Director, Christine Lagarde, called for “targeted and timely measures to clamp down on high loan-to-income ratio mortgages”.
The Bank of England’s Financial Policy Committee (FPC) is expected to introduce new rules on lending in its Financial Stability Report at the end of June 2014.
Lending to first-time buyers fell by 0.5% from the 20.6% peak observed in the final quarter of last year to just 20.1% in the first three months of 2014.
The figures have taken many economists by surprise, mainly because the Government’s Help to Buy scheme has helped first-time and next step property buyers to be able to purchase residential property with just a 5% deposit.
However, the value of residential mortgage loans granted to first-time buyers is now around £9.4 Billion (GBP) over the first quarter of 2014, these figures are 52% higher than the same quarter of 2013, before the second phase of the Help To Buy Scheme was launched.
Many new mortgage borrowers are trying to fix their mortgage rates ahead of the anticipated interest rate rise.
The proportion of gross mortgage loan advances at fixed rates increased for the sixth consecutive quarter to 81% between January and March 2014, an annual increase of 10.3%, the highest observed proportion since before the property crash back in 2007.
The overall average interest rate decreased to 3.24%, the lowest interest rate since 2007, driven by the decline in average variable rates to 2.93% and partially offset by the increase in average fixed rates of 3.32%.
Many property investors and portfolio landlords are attempting to take action to try and protect themselves, where they can.
With more than 80% of new mortgage loans taken out on a fixed rate basis over a pre determined time period, even though the average fixed rate has edged higher, while variable rates are still comparatively low on average. The growing threat of an interest rate rise means that the allure of the fixed rate mortgage remains strong
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