Data released last week by the BoE revealed that more than a quarter of Lloyds’ mortgage books are worth at least 90% of the property value they are secured against.
The danger from these loans is that home buyers who make small deposits are considered more likely to fall into arrears. High LTVs pose the risk of bigger losses if borrowers default.
Analysis from Standard & Poor’s, the credit rating agency, found that a borrower with a 10% deposit was estimated to be twice as likely to fall into arrears as one putting down 30% to 40%.
The BoE considers 60% of Lloyd’s secured debt book, which includes mortgages to individuals and businesses, to have an LTV ratio deemed as high or very high. This is compared to 38% for the Royal Bank of Scotland, 33% for Santander, and just 6% for HSBC.
About 13% of Lloyds’ £340bn mortgage book, £45bn of loans, exceed the value of the property they are secured upon. The actual number of borrowers in negative equity is much smaller at about 5%. The figures show how vulnerable Lloyds are to a fall in house prices.
Lloyds emphasised that negative equity only becomes a real concern for borrowers if they need to move house and said it had a range of mortgage products to assist these customers.
It expects the LTV position to be stable, although it forecasts a 2% fall in house prices this year, as it believes they will rise by the same amount in 2012.
Ronit Ghose, analyst at Citigroup, said: “This increases the worry about the quality of Lloyds’ assets and the potential of loan losses to come.”
