Analysis from audit, tax and advisory firm Mazars said these represented mortgages where the loan exceeded 4.5 times the salary of the borrower. 

The Bank of England states that these kinds of mortgages should not represent more than 15% of a lender’s portfolio. 

Mazars warned that borrowers on “riskier” mortgages were more likely to fall into arrears and said the uncertainty around house prices raised the prospect of them falling into negative equity. 

This comes after reports from both Nationwide and Halifax recorded annual declines in average house prices in July. 

‘Borrowers stretching finances to the limit’

Paul Rouse, partner at Mazars, said: “The scale of risky lending is a clear sign that many borrowers were stretching their finances to the limit even as interest rates were rising.  

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“When the market is performing strongly, borrowers could take greater risks with their mortgages, made possible by low interest rates and lower monthly payments. This is no longer possible as the cost of living crisis continues to strain household budgets.” 

Rouse added: “With households at greater risk of falling short on their payments, larger banks and building societies will be active in offering forbearance to their customers.  

“However, smaller lenders may feel under less pressure from the Financial Conduct Authority to offer these concessions and may be much tougher on struggling borrowers in order to reduce their own losses.”