Nearly half of all mortgage advances in the second quarter of this year went to borrowers with high loan-to-income ratios, according to recent data from the Financial Conduct Authority and Bank of England.
The figures show that 46% of gross mortgage advances between April and June were to borrowers with high loan-to-income ratios, up from 41.4% in the same period a year earlier. The increase marks a reversal of restrictions introduced following the 2007 credit crisis, which were designed to prevent borrowers from overextending themselves financially.
Extended mortgage terms
Jinesh Vohra, Chief Executive of mortgage payments app Sprive, has raised concerns about borrowers taking out longer-term mortgages spanning 30 or 40 years to reduce monthly repayments. He argues that borrowers need to understand the total lifetime cost of their mortgage, rather than focusing solely on monthly affordability.
“I think it’s very important that people understand the cost of debt, because it’s not just about meeting the monthly payments. You have to be able to do that over the entire lifetime of the mortgage,” Vohra said.
Market implications
The trend towards higher loan-to-income ratios comes as regulatory restrictions have been relaxed in recent years. This shift has implications for the wider property market, particularly as landlords reassess their investment strategies amid changing market conditions.
Vohra highlighted that changes in employment, health and personal circumstances could affect borrowers’ ability to maintain repayments later in life, particularly for those on extended mortgage terms. The concern comes as the mortgage industry faces calls for greater transparency around long-term debt obligations, similar to broader calls for improved regulation across the property sector.
The data suggests that despite post-crisis safeguards, the proportion of borrowers taking on higher levels of debt relative to their income continues to climb, raising questions about long-term affordability in the UK housing market.
