North/South divide in mortgage indebtedness

A north/south divide in mortgage indebtedness has emerged according to Edinburgh-based property management firm DJ Alexander Ltd.

The large, family-run businesses, says it has analysed official data and found that outstanding mortgage debt has grown considerably in London and the South East of England over the last five years whilst remaining static or declining across the rest of the UK.

Over the last five years outstanding residential mortgage debt has risen by 9.3 per cent across the UK to reach £980,309,171,823 with almost half (45 per cent) of this debt accounted for in London and the South East.

While the property boom in the south has been well documents what is extraordinary is that the debt in London has risen by 16.9 per cent over the last five years at a time when many areas of the country have seen falling levels of outstanding mortgage debt. In some parts of London such as the South East and East mortgage debt has increased by over 25% in five years.

Whereas other parts of the UK such as Yorkshire and Humber, Wales, and the North East have all experienced declining levels of mortgage debt with Scotland seeing the greatest drop with mortgage debt levels fall by 3.6 per cent over this period. The North West, the West Midlands, and the South West all experienced modest growth of 0.7 per cent, 2.4 per cent, and 3.4 per cent respectively.

David Alexander, managing director of DJ Alexander Ltd, said: “Everybody knows that prices in the London and South East property market have been soaring over the last few years so this difference in outstanding mortgage debt between the north and south is to be expected. But it is the level of debt and how quickly it has risen that is concerning. Some areas of London have seen outstanding debt rise by 25.6% in five years and you would have to question how sustainable such an increase is both for individuals and for the property market itself.”

“Indeed, many have said that much of the growth in property prices has been due to overseas investors pumping large amounts of cash into the sector. However, these figures would indicate that a substantial amount of money has been borrowed to pay the rising prices in the London and South East property market.”

“The fall in debt in other areas is completely understandable as we have had record low interest rates, very low levels of unemployment, and a fairly stable economy which results in people being able to pay down their debts, mortgages included, at a relatively fast rate. House prices outside the London and South East bubble tend to be substantially lower, and consequently, more affordable so repaying the mortgage is easier. There may also be some impact from the stricter lending criteria applied by lenders over the last five years.”

The postcode with the highest level of outstanding mortgage debt is, unsurprisingly, in London in E14 9 which is the Canary Wharf, Limehouse Tower Hamlets area where the debt level stands at £834,173,610.

Mr Alexander added: “Of course high levels of mortgage debt are not a bad thing as long as everyone can meet their monthly payments. They are part of the way in which the property market grows. The concern is that while interest rates remain at historically low levels clearly fewer people will have problems in the short term. Difficulties may arise when interest rates go up and mortgage payments become unsustainable. Whether we are in this position yet remains to be seen but it is clear that many hundreds of thousands of people in London and the South East have continued to borrow extremely large amounts against property which recent reports indicate may now be falling in value. There could be problems being stored up for some time to come as the balance between debt and equity closes and lenders become wary of too much exposure in this market. For much of the rest of the UK, however, the reduction in mortgage debt overall is to be welcomes and is a sign of greater stability in home ownership which is to be welcomed.”