Edeus has found that average loan to value ratios in the adverse mortgage sector is lower than the general UK average, contradicting speculation that the UK is set to experience similar problems to the US sub-prime market where LTV levels are often close to 100 per cent.
The research – drawn from over 6000 decisions worth over £1,3bn submitted to Edeus from September 2006 to date – is the first to be issued from Edeus regarding the UK adverse mortgage market and its borrowers.
At a time when the adverse mortgage market has been under scrutiny due to the issues faced in the US, Edeus has found that the average LTV is 76.7 per cent.
According to CML data, the average LTV for house purchase in 2006 was 80 per cent and for first time buyers 90 per cent. This shows that the average adverse borrower has significant equity in their properties.
The fact that LTVs for the adverse sector are below those for house purchasers and first time buyers in general contradicts speculation that adverse borrowers are set to experience similar problems to those of their US counterparts. At less than 80 per cent LTV Edeus believes it is obvious that lenders and brokers are acting responsibly in this market and are ensuring adverse borrowers have adequate equity.
In the US adverse mortgage market LTV levels are often close to 100 per cent and in some cases higher than 100 per cent LTV, this has meant that many properties have dropped into negative equity.
Head of PR Nicola Severn says: “These findings demonstrate that the UK market is far from vulnerable. LTVs are lower in the adverse market than in the general UK market as a whole. Adverse borrowers are not mortgaging themselves to the hilt, they know what they can afford and are able to service debt. There will of course always be those who struggle to meet repayments but the clear message from this data is that there is definitely no need for panic.”