Canny Scots steer clear of high-risk mortgage frenzy

Homebuyers in Scotland are steering clear of the risky mortgage frenzy amid fresh fears that many people across the UK could be over-stretching themselves.

Homebuyers in Falkirk and Kirkcaldy made some of the biggest cuts to the number of risky mortgages. Picture: Yui Mok/PA Wire

Research published today by alternative finance provider Lendy suggests that the number of risky mortgages taken out by Scottish borrowers was 2 per cent higher last year than in 2011, rising to 1,466 from 1,443, while the UK-wide total leapt 23 per cent, from 57,782 to 71,273.

According to the Bank of England, high-risk mortgages are those lent at 4.5 times or more of a person’s salary. People taking out such loans, as with all mortgages, face repossession of their homes or even insolvency should they not be able to make repayments.

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High-multiple loans and 100 per cent-plus mortgages led to many people losing their homes during the credit crunch, though affordability remains a major barrier to first-time buyers in several parts of the UK.

Lendy – a peer-to-peer secured lending platform – said more homes needed to be built to prevent a further rise in risky mortgage borrowing. However, a lack of available funding for housebuilders has resulted in a shortage of new properties, meaning purchasers are over-extending their finances to compete for the limited stock available.

Homebuyers in Falkirk and Kirkcaldy made some of the biggest cuts to the number of risky mortgages during the period under review. Out of 115 UK “regions” in the report, Falkirk had the UK’s second largest drop in high-risk mortgages, and those in Kirkcaldy saw a 30 per cent fall – the 9th largest reduction in the UK.

Lendy also noted that homebuyers in Aberdeen have noticeably tightened their belts since the oil price slump as disposable income growth slows.

On the flip side, the research found that purchasers in the south of England have seen sharp increases in high-risk mortgages since 2011, as many over-extend themselves to keep up with rising house prices. In south-east London, for example, risky mortgages have doubled.

Liam Brooke, co-founder of Lendy, said: “Scotland’s homebuyers have recognised the dangers of risky borrowing. It’s almost stereotyping to say that the Scottish have a reputation for prudent finances, but these figures show that homebuyers north of the Border are significantly less likely to overstretch themselves when taking out a mortgage.

“Housing shortages mean that homebuyers in the UK as a whole, however, are getting more and more overstretched every year.

“Bank lending to property developers has fallen, and it is the smaller housebuilders being hit hardest. As a result, we are seeing more and more of them look for alternative ways of funding their projects, such as peer-to-peer finance.”

The research discovered that Belfast saw the largest cut – 57 per cent – in the number of high-risk mortgages taken out since 2011.