High LTV mortgage loans have become commonplace in recent years, yet they merit concern because of the risks they pose to both lenders and mortgagors.



Report Highlights
To accommodate customers challenged by a lack of affordability, as well as to remain competitive with regards to customer acquisition, lenders have adapted their offering by raising the LTV on their mortgages so that FTBs or young movers can borrow with them. The proliferation of 100%+ LTV mortgages is just one case in point. While the vast majority of high LTV mortgages are offered by lenders that have fully checked that the applicant(s) can afford it, they still expose borrowers to a greater extent than traditional mortgages with a lower LTV. Indeed, customers are exposed to the possibility of negative equity, a Higher Lending Charge, and higher interest rates. While high LTV mortgage borrowers are already exposed to risk, their exposure becomes greater in an uncertain economy or in a recession. While no official data is available, there is anecdotal evidence that mortgagors with high LTVs are more likely to suffer difficulties with monthly repayments, go into arrears and suffer repossessions more often.


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Table 1: LTV at origination of all loans for house purchase in the UK, Q2 2005-Q4 2006 (%) 7
Table 2: Change and percentage change in the number of products available in the UK mortgage market, July-September 2007 10
Table 3: UK properties in arrears and taken into possession, H1 1995-H1 2007 (units) 14


Figure 1: Arrears and repossessions are on the increase in the UK, H1 1994-H1 2007 5


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