July 10 (Bloomberg) -- U.K. homebuyers took out the most high-risk loans in June since the financial crisis as banks offered opportunities to first-time buyers that may not be available for much longer, property appraiser e.surv said.
Homebuyers took out almost 11,000 mortgages with a down payment of 15 percent or less in June, the most since April 2008, the unit of LSL Property Services Plc said today in a statement. That accounted for about one in five of the loans issued last month, compared with one in nine a year earlier.
The looser lending practices have helped drive up home prices, prompting Bank of England Governor Mark Carney to announce loan-to-income caps last month. The bank’s measures, which include an affordability test, may be enough to push otherwise creditworthy buyers out of the market, according to e.surv.
“The cost of getting onto the housing ladder -– and saving for a deposit -– has been building,” Richard Sexton, a director at e.surv, said in the report. “More high LTV lending prevented a flatlining of first-timers.”
Mortgages of 100 percent or more of a home’s value were available in the years before the financial crisis, sparking speculation that led to a housing market collapse starting in 2007. Low down-payment mortgage lending peaked in February of that year when more than 41,500 loans were given to buyers paying 15 percent or less of the value up front.
Home loans plummeted after the financial crisis, prompting Prime Minister David Cameron’s coalition government to take steps to help first-time buyers and other borrowers obtain mortgages with lower deposits. Home prices soared as the measures took hold and banks with improving balance sheets became more open to lending.
BOE’s Carney called surging U.K. home prices the No. 1 risk to the economy when he announced measures to curb risky lending on June 26. The central bank’s Financial Policy Committee is introducing caps that limit mortgages of 4.5 times a borrower’s income to no more than 15 percent of a bank’s new home loans. It also said banks will have to decline mortgages to borrowers who fail a new repayment test.
London home prices climbed at the slowest pace in 15 months in June, the Royal Institution of Chartered Surveyors said today. Values are expected to decline as the central bank’s property measures deter buyers, RICS said.
The average loan-to-income ratio was 3.83 in London and 3.39 nationwide in May, e.surv said.
Even as higher-risk lending increases, the volume of mortgages overall is declining. The total fell for the sixth straight month in June to 61,568, e.surv said. High LTV lending remains below the peak before the financial crisis, when one in three loans was to a low down-payment borrower, it said.
“High LTV lending is the only thread linking many prospective buyers with the hope of owning their own home,” Sexton said in the statement. While loan applications should be thoroughly assessed, “simplistic LTI caps are a step too far and may tip hosts of creditworthy borrowers out of the market.”
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