Elizabeth Burden and Neil Callanan
UK lenders are ramping up riskier mortgage-lending in areas most vulnerable to Brexit, just as British property values start to fall and interest rates increase.
That could be bad news for banks and home-loan providers in places like the north of England, a region that’s already facing a hit to its wealth, from the UK’s withdrawal from the EU, 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, 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” and “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.
Housing’s heading “for the doldrums,” Simon Croft, a broker in 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.
As high prices deter buyers and as price declines ripple out from London, competition among lenders, for those choosing to buy or remortgage, is rising.
The consequent pressure on margins contributed to a fall in pre-tax profit at Yorkshire Building Society in the first half, and Nationwide Building Society in the three months through June.
Lenders have been increasing the amount of low-deposit loans they give to homebuyers, as cheap borrowing rates and government programmes to encourage purchases lift demand.
Almost a third of homebuyers in the north-west of England had a small deposit, when they bought or remortgaged their homes in June.
That compares with just over a quarter in April. In Yorkshire, which the UK government estimates would be less-affected by Brexit, more than 33% of borrowers had a low down-payment.