Londoners more likely to struggle with mortgages than rest of UK, says regulator

Londoners and people living in south-east England are 55 per cent more likely to struggle to pay their mortgages than those living elsewhere in the UK, data shows, highlighting the uneven effect of the cost of living crisis.

The Financial Conduct Authority said on Friday that 5.9 per cent of the 1.8mn mortgage holders in London and the South East were at risk of being “financially stretched” by mid-2024. According to the regulator, people who are financially stretched have a mortgage costing them more than 30 per cent of their gross income.

The findings highlight the vulnerability of Londoners’ living standards to high housing costs. Median incomes in the capital are no higher than the rest of the country when measured after housing costs, according to the data.

The share of mortgages at risk of default across the UK, excluding London and the South East, is 3.8 per cent, with the lowest rates in the poorest regions where house prices have traditionally been lower, including north-east England (2.3 per cent), Northern Ireland (2.4 per cent) and Scotland (2.8 per cent).

The FCA released the figures as it finalised guidance for banks to support at-risk borrowers, including proactively contacting them about options to help them avoid default. The watchdog said banks reached out to customers 16.5mn times last year to offer support and expect this number to rise to 20.5mn in the next 12 months.

“Our research shows most people are keeping up with mortgage repayments, but some may face difficulties,” said Sheldon Mills, FCA executive director of consumers and competition, adding that those worried by default should contact their banks sooner rather than later.

The picture on at-risk mortgages nationwide has improved to 356,000 from the 570,000 predicted last autumn. The FCA said the 570,000 figure was based on interest rate expectations in September 2022, when the bank rate was forecast to peak at 5.5 per cent. Its data was calculated on expectations that rates would now peak at 4.5 per cent.

The FCA findings that London-based households with mortgages are more likely to be financially stretched match a range of recent surveys showing that living standards in the capital are no longer higher than average.

Official figures show that although households in London have higher average incomes after tax than any other region or nation in the UK, once rent or mortgage interest costs are deducted, their level of disposable income is no higher than average.

Income growth in the capital has also ceased to rapidly outpace other parts of the country, and productivity growth rates have been below average in the UK since the 2008-09 financial crisis.

In a report last week, the Centre for Cities blamed the slowdown in London’s productivity growth for a disproportionate amount of the overall weakness of the UK economy since the crash 15 years ago.

The think-tank said a lack of housing affordability in the capital was preventing skilled people from moving there, hitting the value of output per hour worked.