The latest research conducted by Savills has highlighted which areas are most at risk when interest rates rise.
Savills has found that differing mortgage constraints affect different areas, looking at both outstanding loan to value mortgages as well as loan to income ratios.
While north England and Wales have higher average outstanding loan to value mortgages, London and the South East have the highest average loan to income ratios.
British mortgaged owner occupiers have an average outstanding loan to value of 48%, but this ranges from 39% in London to 60% in the North East of England - despite the fact that the total value of mortgage debt in London is more than six times higher.
Lucian Cook, head of Savills UK residential research, said: “This reflects the fact that owner occupiers in London have benefitted from strong price growth in the period post credit crunch, which has added substantially to their net housing wealth.
In contrast, residential property in the North East caries a much higher level of debt relative to the underlying value of the assets on which it is secured, due to lower longer term price growth and a much more muted performance over the last 10 years.”
This variation is even more pronounced at a local level: in Burnley the average outstanding loan to value among owner occupiers with a mortgage is 88%, while in Camden it is just 15%. Generally, the most indebted areas tend to be the least affluent urban markets of north England and Wales, though Worcester and Peterborough also rank highly. The least indebted are a combination of high value London boroughs that have seen exceptional price growth and affluent rural areas with older populations who have paid down the bulk of their mortgage debt.
The markets most exposed to rate rises are those with a combination of relatively high outstanding loan to income and high loan to value ratios. These include the likes of Newham, Crawley, Barking and Dagenham, Tower Hamlets, Harlow, Worcester, Watford, and Slough.
At the other end of the scale are the likes of West Somerset, Camden, Eden, Copeland, Richmondshire and North Norfolk where outstanding levels of debt are much less of a constraint. Kensington and Chelsea and Westminster also fall into this list, though their markets are affected much more significantly by issues such as stamp duty.
Lucian Cook added: “Loan to income ratios are more stretched in London despite the higher equity cushion. Consequently, the capital will be more constrained by mortgage market review and increased interest rate rises. This will particularly affect younger owner occupiers, who are relatively new to the market and have stretched themselves on higher loan to incomes.
On the other hand, some of the markets with the least equity are less affected by affordability constraints as they have lower loan to income multiples, but people’s ability to trade up the housing ladder may be limited by a lack of accumulated equity to put down as a deposit.”