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Share of high LTV mortgages issued this year below pre-global financial crisis – BoE

  • 13/07/2021
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Share of high LTV mortgages issued this year below pre-global financial crisis – BoE
The share of high loan to value (LTV) mortgages issues to borrowers accounted for six per cent of new lending in the first quarter of the year, lower than the proportion provided before the 2008 global financial crisis.


According to the Bank of England’s (BoE) Financial Stability report, this was down on the 22 per cent of mortgages at 90 per cent LTV and higher issued in Q1 2007. 

Despite the return of mortgages for those with low deposits in the beginning of this year, this was also a decline on the 20 per cent share of high LTV mortgages issued in 2019. 

As a result, the proportion of high LTV loans in the stock of outstanding mortgages was also down, sitting at three per cent at the beginning of this year compared to seven per cent before the global financial crisis. 

The number of loans provided with a loan to income (LTI) ratio of 4.5 or higher rose slightly to 10.4 per cent during the first quarter of this year, up from 9.5 per cent during the same period last year. 

This remained below the Financial Policy Committee’s (FPC) 15 per cent limit. 

The report said the FPC would continue to review its mortgage market recommendations to limit an increase in mortgage indebtedness, including the affordability stress test and curbs on LTI flow. 

As set out in the December 2020 Financial Stability Report, its conclusions will be published in its review of the first half of this year. 


Financial resilience 

While the lending to riskier borrowers remains relatively conservative, households and banks were said to be financially resilient to the pandemic.

It said: “Major UK banks and building societies have been resilient to the challenges posed by Covid and their capital and liquidity positions remain strong.” 

The share of households with high debt-servicing burdens increased marginally during the pandemic, but remained significantly below pre-global financial crisis levels.  

Some 1.4 per cent of UK households had high debt-servicing ratios of 40 per cent or more on their mortgages in March this year, compared to 2.7 per cent of households in 2007. 

Annually, this was a nominal increase on the 1.3 per cent of households with high levels of mortgage debt last year. 

Overall, BoE said there was “some evidence that households’ finances are likely to remain resilient as some support measures unwind”, referencing the 80 per cent of households that had returned to making full mortgage repayments after applying for a deferral. 


Support may still be needed 

Although personal finances appeared to be stabilising, the BoE said banks should still provide support as households could face additional pressure if downside risks to the economic outlook materialised. 

The report said: “The FPC continues to judge that banks are able to support UK businesses and households as needed.” 

So far, the Monetary Policy Committee (MPC) expects the increase in unemployment to be relatively low as support ends and return to pre-pandemic levels. 

However, it warned that if the economic outlook worsened without support, the increase in unemployment and reduction in household income would be more severe than predicted. 

The report said if this were to occur, factors suggested losses would be more likely within consumer credit rather than mortgage debt. It also warned lower income households would be more vulnerable. 

“Historically, there has been a strong correlation between unemployment and consumer credit loss rates. Relative to mortgages, unsecured debt is also more concentrated at the lower end of the income distribution.  

“And lower income households have fared less well through the pandemic as they faced more persistent shocks to income and were less likely to accumulate savings,” it added.  

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