According to new research by peer to peer secured lending platform Lendy, Croydon saw a 35.6% rise in the number of high-risk mortgages, up from 309 in 2015.
The Bank of England guidance says mortgages are considered ‘high-risk’ if they are lent at 4.5 times the applicant’s salary or above.
Across the UK, 88,057 high-risk mortgages were taken out last year, equating to 8.1% of all home loans. The percentage of high-risk mortgages taken out in Croydon was more than double this at 16.5%.
Lendy says that Croydon is establishing itself as a leading hub for technology companies and the town’s revival is rapidly driving up house prices and causing buyers to stretch themselves.
Investment in Croydon
Liam Brooke, co-founder of Lendy, commented: “Croydon has reinvented itself as an up-and-coming business and technology hotspot with all the trappings of success like fintech companies and the Boxpark (pictured above). Homebuyers are now really stretching themselves to live there.
“Investment in the town has improved transport connections and opened Croydon up for growth, as its proximity to Gatwick and London allows easy links to international and European trade markets.”
“However, bank lending to property developers has fallen, and it is the smaller housebuilders being hit hardest. As a result, we are seeing more and more of them look for alternative ways of funding their projects, such as peer-to-peer finance.”
Lower LTVs
The rapid growth of house prices in areas like Croydon means that those looking to invest in property may benefit from choosing to lend against properties with lower LTVs rather than investing directly in equity.
Lendy says that lower LTVs play a big role in ensuring that risk is reduced for their investors and it offers LTVs of 70% or below on its properties.
Investors can also lower the risk involved in the property market by diversifying their exposure. Peer-to-peer platforms like Lendy allow individuals to access different types of property and risk/return profiles, resulting in a broader mix of relatively higher yields and medium yields.
Brooke continued: “Peer-to-peer lending may be a good option for investors keen to access the returns the market offers without risking too much. Limited LTVs and holding a first charge over a property provide insulation from risk that direct property investment cannot offer.
Other areas with large numbers of high-risk mortgages included Walthamstow in East London, with 371 lent in 2016, and Wandsworth, with 330. Six of the top ten high-risk mortgage postcodes are in South West London.
Croydon’s homeowners took out the most high-risk mortgages in the UK in 2016 out of 348 postcodes
Lendy was founded in 2012 and has grown to over 15,700 registered users with more than £300 million of funds provided for UK property investments. Due diligence is undertaken on each loan before it goes live on the platform
Funds lent through a peer to peer website are not covered by the Financial Services Compensation Scheme (FSCS), although Lendy says it maintains a substantial discretionary provision fund to assist in making up any recovery shortfalls.