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High LTV lending on the rise: BoE

The share of mortgages above 90 per cent loan-to-value advanced in the first quarter of 2019 rose to 4.5 per cent from 3.3 per cent a year earlier, Bank of England data shows.

The proportion of higher LTV lending is the highest the Bank has seen in almost two years, it says.

The figures come after the boss of the Bank of England’s Prudential Regulation Authority warned that regulators should be watching “like a hawk” as lenders seemed to be increasing their activity at high LTVs and loan-to-income ratios in the face of fierce competition on rates.

Moneyfacts also noted that the cost of higher LTV deals has come down significantly over the past five years when compared to rates for those with larger deposits.

The Bank of England’s latest figures also show a small increase to high loan-to-income lending.

It says the proportion loans greater than four times annual income for a single borrower or greater than three times income for joint borrowers was 45 per cent, up marginally from close to 44 per cent a year ago.

Overall, gross mortgage lending rose by 1.4 per cent to £63.3bn from £62.4bn a year ago.

Lending was down by 13 per cent from £72.9bn in the fourth quarter of 2018, in line with seasonal trends which typically result in a slowdown during the early months of the year.

Mortgages for house purchase made up 46 per cent of total advances and of this 19 per cent was to first-time buyers.

The share of mortgages to home movers dropped only slightly to around 27 per cent.

Mortgages for buy-to-let landlords dropped marginally to 14 per cent of all lending.

Spicerhaart Corporate Sales managing director Mark Pilling says that while tarrears are currently at the lowest level since 2007, making up just 0.99 per cent of total balances, the increase in high-LTV lending is concerning.

He says: “This suggests that many borrowers are stretching themselves too thin, and if and when rates do rise, they may start to struggle.

“It is therefore important that lenders to look at all the cases on their books and if they have concerns about borrowers who are already struggling or are likely to down the line, to speak to them sooner rather than later in order to look at possible options.”

Responsible Lending managing director Keith Haggart says: “The growth in lending to borrowers with less than a 10 per cent deposit points to continuing financial pressure on first-time buyers, whose opportunistic streak means they are likely taking advantage of high LTV mortgages becoming more widely available.

“There is also a developing trend which means buyers are borrowing over longer periods, and this can drive up the LTV, helping them to keep more cash in their pocket.”

Private Finance mortgage consultant Chris Sykes adds: “Encouragingly, as high loan-to-value (LTV) and high loan-to-income (LTI) lending increases, the proportion of loan balances in arrears has fallen to its lowest point since this series began in 2007.

“This proves that high LTV lending has its place in the market, and shouldn’t be written off as a ‘risky’ practice.

“For many first-time buyers high LTV loans are their only route onto the property ladder, and with today’s stringent affordability checks in place, this should be seen as a viable choice.”

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