A new analysis by Mazars found that 19 of the 20 postcodes with the most “risky” mortgages – defined by the Bank of England as those where the loan is at least 4.5 times the borrower’s earnings – were in London.
The only postcode outside of London in the top 20 was Maidenhead, still within the London commuter belt.
In particular, South West London dominated the top of the list. Wandsworth had the most risky mortgages, worth a total of £232 million, while Battersea was second with £198 million and Wimbledon was third, followed by Fulham and Tooting.
The Bank of England only permits a maximum of 15% of a lender’s mortgage book to be “risky” loans.
Mazars partner Paul Rouse said that this means banks and building societies have to make choices about where these 15% should be allocated.
“Mortgage lenders have to make a very careful judgement over where they write the riskiest loans in their loan books – and they clearly see south London as a sensible place to do that,” Rouse said. “Only a substantial and prolonged fall in the housing market will reveal whether that’s true.
“Hopefully the concentration of such a large amount of their lending to their most highly geared customers in an area about 20 miles wide will only get challenged by the bank’s own stress testing.
“Areas like Wandsworth, Wimbledon and Battersea should be attractive to homebuyers even in the worst market conditions. Lenders believe that makes houses there a good risk for them to take.
As interest rates rise, mortgages worth a high portion of earnings may be at the highest risk of default, meaning these London postcodes could be hit hardest in the event of a property market crash.
“With the housing market potentially facing further choppy waters in the coming months, mortgage lenders will be hoping that their loan books are well-prepared to weather some defaults,” Rouse said.