Irresponsible lending in the UK could lead to return of negative equity
TSB has reduced mortgage lending to first-time buyers, especially in London, amid growing concerns that many homeowners without significant equity in their homes could soon find themselves in negative equity as a result of falling house prices, particularly in the capital.
In what some people may consider to be eerie echoes of the start of the financial crisis, TSB’s chief executive Paul Pester has warned that many lenders in the UK are being reckless by providing property buyers with cheap loans that they may not be able to afford, especially when interest rates eventually rise, at a time when home prices are starting to look increasingly vulnerable.
UK house prices fell for the second month in a row during April, according to the Nationwide.
The building society said prices dropped 0.4% in April, and the annual rate of price growth slowed to 2.6%, the weakest pace for almost four years.
“As someone who has personally been in negative equity way back, I know it is not a great place to be and I do not want any of our customers to be in that place,” said Pester.
TSB is reluctant to lend to customers with small deposits of just 10% and when it does, it will not lend more than £250,000.
Pester told the Sunday Mail that many large lenders were using “underhand tactics” to ensure that they have a “stranglehold” on the UK mortgage market and that they are being largely “irresponsible” with that authority by luring borrowers into a false sense of security, putting the stability of the UK housing market, and wider economy, at risk in the process.
He added: “Responsible lending is good for customers, it’s good for banks and it’s good for the economy. Irresponsible lending is bad for the customer, it’s bad for the bank and it’s bad for the economy.
“So I would be worried about what is going to happen in a few years’ time. That is why we are not in that space. I think it is up to banks and those individuals leading banks to take those decisions very carefully.”
Blog Post from Property Investor Today
If you have any comments, please email the author of this article and click on the link above