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High-risk Mortgages Slowly Reappearing

Just months after the Bank of England put a cap on risky 90%+ mortgages, they are back on offer.

The increase has been catalysed by lenders falling profit margins crushed by oversupply and falling demand for housing throughout the UK.

Bank of England data published at the start of April revealed that, while mortgage approvals had declined for applicants with 25% or more deposits, borrowers looking for mortgages worth over 90 percent of the home’s value had gone for the first time in almost a year.

New regulatory measures recently provided to the Bank of England from the Treasury allow it to cap higher loan to value mortgages if they believe them to threaten financial stability. Last year it put limits on mortgages offered to applications with a high loan to income ratio. The effect of these new measures have seen the UK housing market slow down considerably.

The quarterly credit conditions survey conducted by the Bank showed a substantial decline in mortgage demand in the first financial quarter of 2015, which represents the third quarterly fall in a row. Decreasing demand and more competition has resulted in a reduction in mortgage profit levels for lenders.

The greater level of competition in the mortgage market may be propelling more banks into issuing high loan to value mortgages. A measurement of the net percentage balance, which shows the gain or decline in the number of loans worth upwards of 90 percent of a property’s total value, reported a positive figure in the first quarter of the 2015, with a significant jump to 9.0 from the -18.9 reported in the final quarter of 2014.

Bank representatives reported that lenders admitted there was a slight change in the willingness to issue mortgages to applicants with an loan to value ratio above 90 percent.

Housing remains one of the country’s biggest internal risks to economic stability, although these risks have not gone up recently, according to the Bank of England.

 

Specialists in Construction Insurance

In June 2014 Mr Carney, the Bank of England's governor stated that any mortgage lender must take steps to ensure that people trying to borrow more than 4.5 times their salary account for no more than 15 percent of mortgages. He explained that the move was a form of insurance to keep the market from overheating. Steps such as these were regarded as a way of controlling mortgage lending without the need to prematurely raise interest rates.

In general, lenders that the Bank surveyed stated that they expected the demand for mortgages to recover in next 3 months of 2015. This optimism is present even though there have been concerns from some analysts that uncertainty over the upcoming general election in May. It is believed that if the election results in a Labour party victory high-value properties could be affected with a mansion tax.

Banks also anticipate that mortgage spreads will narrow considerably in the next three months, and do not expect that there will be any major increase in the market demand for business loans.

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