Risky mortgages on the rise in areas most vulnerable to Brexit

LONDON: Lenders are ramping up riskier mortgage lending in the north of England just as property values start to fall and interest rates increase.

That could be bad news for banks and home-loan providers in a region that’s already facing a hit to its wealth from the UK’s withdrawal from the European Union, no matter what kind of agreement is reached.

It also threatens to hurt the economy there as borrowers cut back on spending to meet rising mortgage payments.

With the risk of a no-deal Brexit increasing, any subsequent squeeze on incomes and rise in unemployment could turn the region’s housing market from a slowdown into a slump.

The north, where most people voted for Brexit, is more vulnerable than London to an economic downturn following the withdrawal because of its greater reliance on manufacturing for export.

“Brexit will be very bad news for all regions outside London, which is much more diversified and less dependent on the EU for its well-being,” said Jane Pollard, professor of economic geography at Newcastle University.

“Levels of financial vulnerability will be particularly pronounced in areas like the north east; even people with quite reasonable incomes who are heavily indebted have little buffer if something goes wrong.”

Home prices fell almost 1% in the north west of England in June from a month earlier, and were down 0.3% in the north east and 0.5% in Yorkshire and the Humber area.

Housing’s heading “for the doldrums,” Simon Croft, a broker in the spa town of Harrogate, said in a survey published by the Royal Institution of Chartered Surveyors this month, while realtors in Liverpool and Sheffield warned of a slowdown.

Lenders have been increasing the amount of low-deposit loans they give to homebuyers in recent years, as cheap borrowing rates and government programmes to encourage purchases lift demand.

That led Bank of England executive director Alex Brazier to say in April that credit supply for homeowners is loosening, a remark that so far hasn’t been heeded by banks when it comes to small-deposit borrowers. — Bloomberg