The thing about useful stuff is

Are Banks commiting to unwise lending practices? Monday, October 13, 2008

RBS, LloydsTSB and HBOS have all committed to maintain the availability of SME and mortgage lending at least at 2007 levels as part of the Government share scheme, agreed over the weekend.

This implies a considerable expansion of lending over current levels, which has to be considered precarious entering a recession. Whilst lending criteria might be tightened i.e. Loan to Value ratio is going to be less than 95% etc, it is hardly going to improve the bad debt prospects for the banks. Moreover given that this is now an explicit lending target, lending policies and rates will have to be adjusted to ensure it is met.

Obviously the Government is keen to ensure that the economy remains primed with access to credit but does LloydsTSB+HBOS really need to add to its' existing property market exposure. It may be politically expedient, but is it really good for new shareholders i.e. Us.

Labels: HBOS, Lloyds TSB, mortgages, RBS

posted by John Wilson @ 9:38 AM Permanent Link ,

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Change in lending criteria for City workers will hit the property market hard Tuesday, September 30, 2008

Salaries tend to represent a minority of the total compensation received by City workers, with the bulk coming from bonuses. The latter can be several times as large as the salary component.

Historically, bonuses have been a fairly reliable element of income with the result that mortgage lenders tended to include them for the purposes of assessing a person's mortgage capacity. However, the current chaos has prompted an apparent reversal of this policy by lenders who [rightly] consider that bonuses can no longer be assured and henceforth only salaries will be counted in the calculation.

This will dramatically reduce the ability of City workers to borrow. Setting aside any revulsion/envy you may have at seeing such figures, take the example of a banker earning a salary of £100,000 with a bonus of £300,000. Previously, they may have been able to borrow £1.2m, various things being considered. Now the same banker may be limited to £300,000.

Whilst this doesn't affect anyone in a property already, it will effectively stop them from moving or re-mortgaging, since the new policy would be used to calculate the mortgage limit on a new mortgage/property. At a stroke, the purchasing power of City workers, which has undoubtedly contributed to the property bubble, has been slashed. This will feed directly into the property market and push down prices at the top end of the market, by choking off demand.

Labels: mortgages, property

posted by John Wilson @ 8:43 AM Permanent Link ,

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UK Mortgage market is in big trouble Tuesday, July 01, 2008

When demand D 1 is in effect, the price will be P 1 . When D 2 is occurring, the price will be P 2 . Notice that at both values the quantity is Q . Since the supply is fixed, any shifts in demand will only affect price.

Image via WikipediaThe UK housing market is falling off a cliff.

In May, mortgage applications and approvals dropped dramatically. This normally forewarns of a sharp decline in house prices. Price expectations are such that few potential buyers want to commit to a purchase when they believe that similar properties will be cheaper in a few months.

Only 42,000 applications were approved in May, according to the Bank of England, a drop of 64% when compared with the same month last year. However, it is not just that buyers are disappearing but lenders are both increasing the rates they demand and imposing tighter lending criteria.

The mortgage market turbulence has had an immediate impact on intermediaries in the space, who were already buffeted by reductions in available mortgage capacity from lenders. Charcol, one of the UK largest mortgage brokers announced today it was cutting a quarter of its workforce and closing branches.

Similarly, lenders are looking at redistributing headcount from application processing to credit control and arrears management, with the aim of intervening much earlier in the arrears process.

Those lenders face a double whammy

increasing prices are eroding disposable incomes, leaving some borrowers unable to make repayments on mortgages [that were probably too large in the first place];
having lent at Loan-to-Value [LTV] ratios at 90% and above, they are materially exposed to falls in property prices eroding the value of their security/collateral

Is it better to have a mortgage partially serviced and add unpaid amounts to the debt in the hope that things will improve or repossess the house early to crystallise a loss now? The Government will be hoping it's the former, as a wave of repossessions will make for bad headlines and further depress a gloomy housing market.

The irony is that this is a Government that proclaimed it wanted cheaper and affordable housing - as house prices fall sharply, they are going to get their wish.

Labels: bank of england, Housing, Mortgage broker, mortgages

posted by John Wilson @ 8:45 AM Permanent Link ,

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Perhaps you should hold off buying that new property Sunday, September 30, 2007

For the UK mortgage market as a whole an estimated 2 million loans are due to reset by the end of 2008, equivalent to approximately 17% of all mortgages outstanding, S&P says in Payment Shock Approaching For Borrowers In U.K. Nonconforming RMBS.

Looking at the U.K. nonconforming loans backing the RMBS transactions that we rate, we estimate that around £9 billion of fixed-rate loans are scheduled to reset by the end of 2008, representing 23% of total balances outstanding. A particularly large volume of resets—nearly £5 billion—look set to occur during the first half of 2008.

As rate increases filter through, borrowers are going to face increased repayments, which for some people may be unaffordable and will therefore feed through to higher repossessions levels. This is most likely in the case of the buy-to-let property owners, who are usually highly leveraged and look to rental costs to cover their interest payments, whilst looking to enjoy capital gains.

So why does the post title suggest delay buying? Repossessed housing stock is almost always sold at a discount to normal prices, mainly because quick sale is sought by the mortgage lender. Moreover, buyer demand will be weakened through higher interest rates, especially from buy-to-let quarters, thus easing competition for properties. In such a climate, it is inevitable that sellars, in some instances, will be forced to accept lower prices.

This might take 6-9 months to become evident but it looks one of the more probable outcomes following the turbulent summer.

Labels: mortgages, property

posted by John Wilson @ 3:51 PM Permanent Link ,

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