Lloyds takes precautions on UK home mortgages as bubble talk simmers

House prices in London are up as much as 17% from last year, according to the most recent data from the Office of National Statistics, which shows recent home values averaging £253,000 across the UK and £458,000 around London.

“We have taken measures to limit the amount we would lend to those borrowing £500,000 or more,” said Lloyds’ Ian Stewart, head of securitization and mortgage funding, at IMN's Global ABS conference in Barcelona this week.

A flurry of new warnings regarding a potential housing bubble came this week from the IMF’ Christine Lagarde and from officials at the Bank of England. Lagarde on Wednesday urged the central bank to consider deploying stronger loan-to-value and loan-to-income ratios as part of its menu of possible precautions.

Bank forecasters expect as much as £200bn in new home lending by the end of the year. That compares with a pre-crisis peak of £300bn, Stewart said.

Gregg Kohansky, an analyst at Fitch Ratings, warned conference attendees to expect home prices to continue rising at incremental rates. Home prices nationwide would contract as much as 15% should the housing market face a “shock to the system”, and as much as 25% in the London area alone, he said.

Yet there is “no hard evidence” that prices are in bubble territory, according to Stewart, who was joined by six other residential market experts from a different panel that decided the UK was not facing a housing bubble.

It is still very hard for first-time homebuyers to save for a deposit, and around 20% of lending is in the buy-to-let space, which is increasing the number of renters nationwide, he added.

“Bubbles are often only talked about on the price side, but in 2007 there was also corresponding lending on the demand side,” said Alastair Bigley, senior vice president at DBRS.

UK mortgage originations hit a high of around £98bn in the first quarter of 2007. That compares to £46bn in volume this past quarter, Bigley said.