London postcodes at highest risk of mortgage defaults

As interest rates rise, mortgages in London postcodes are at the highest risk of default, according to a new analysis by Mazars.

The analysis found that 19 out of the top 20 postcodes with the most risky mortgages, defined as loans at least 4.5 times the borrower’s earnings, were in London. South West London dominated the list, with Wandsworth, Battersea, Wimbledon, Fulham, and Tooting taking the top spots.

The Bank of England allows a maximum of 15% of a lender’s mortgage book to be risky loans.

Mazars Partner Paul Rouse said “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.”

“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.”