Affects defaults and negative equity on the horizon

For UK borrowers, defaults and negative equity risk could be on the horizon, experts said, referring to the latest data.

The Bank of England forecast “an increase” in defaults on secured loans to households between July and September, after the default volume had “remained unchanged” in the previous three months.

She also estimated that demand for secured home finance loans would fall in the next quarter, after rising in the three months leading up to June – the month when the stamp tax vacation started to taper off.

“While the tap is on, some borrowers risk submerging and defaults on all types of household loans are expected to increase,” said Sarah Coles, a personal financial analyst at Hargreaves Lansdown.

In the past few months, more lenders have returned to the 95 percent LTV mortgage market. Accord, Metro Bank and Newcastle Building Society are just a few of the lenders who have developed their products for small borrowers.

But while lenders are increasingly willing to lend, Coles said that “things don’t go smoothly for borrowers”.

She continued, “As the vacation program expires later this summer, there’s a good chance there will be job losses and people who struggle to stay afloat will finally succumb.”

The final mortgage break is slated to end this month, putting an end to industry-wide programs. “That means borrowers have to rely on whatever they can agree with their lender,” Coles said.

In addition to fears of imminent defaults, data published by mortgage comparison website showed that of the 1,501 first-time buyers surveyed, around a third (31 percent) feared a loss of value or negative equity.

In addition, there were 22 percent of those surveyed who feared they would not be able to afford their mortgage in the long term.

Karen Noye, a mortgage expert at Quilter, pointed out that the government’s 95 percent loan-to-value ratio, which sparked a lender reintegration trend, “was a lifeline for many first-time buyers,” but other borrowers could be left out in the cold.

She said, “Those who have been able to take advantage of it should keep in mind that a significant drop in prices could leave them with the very real problem of negative equity and all of the headaches that come with it.”

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