Who are the mortgage borrowers in London ?
An analysis of London mortgage borrowers #ukmortgages #pompompricing
Mortgage borrowers in London largely consist of first-time buyers, home movers (i.e. those households that have a secondary home or are trading up/down) and re-mortgagors.
The UK is in the unique position of UK based lenders offering largely 2-year and/or 5 year fixed rate mortgages, unlike their counterparts in the US or Europe (where they extend 30 year fixed rate mortgages)1, meaning the impact of high interest rates on re-mortgagors will likely to materially increase UK mortgage risks.
Given the added financial difficulties for households to re-mortgage their homes due to recent elevated interest rates, it is likely this would impact sales of homes - namely by households who can no longer afford the higher re-mortgage payments. If this event materialises we would expect an increase in home sales as well as potentially the amount of mortgages extended by banks to dry up.
According to the FCA2 data, as of 2022, re-mortgagors represented the largest portion of London mortgage customers at 36%. It is just a question to what extent these re-mortgagors are struggling to make their mortgage repayments and what portion of them have manageable finances.
In addition, the second largest segment of London mortgage customers include First Time Buyers (“FTB”), representing 35% of London mortgage customers. If these FTB struggle to buy given rising borrowing costs, it will be worth predicting by how much would the London mortgage market fall by and what would this reflect on home prices.
https://www.investorschronicle.co.uk/news/2023/07/18/why-the-uk-s-mortgage-chaos-is-different-to-everyone-else-s/#:~:text=In%20the%20US%20and%20many,the%20course%20of%20a%20lifetime.
https://www.fca.org.uk/data/product-sales-data/mortgages-dashboards