Nationwide to Offer 125% Mortgages

Thrugelmir

Graham_Devon wrote: »

Lets not forget. It makes no difference to Nationwide whether their customer has 20k debt via negative equity on House A or 20k extra owed to them on House B.

All they are doing, is making more money from the negative equity, by turning it into a debt, and then charging a higher rate for the privilege, but also, getting them to borrow 160k again (for example).

Currently, Nationwide cannot make money on that 20k negative equity. If they swallow it on behalf of their existing customer, it turns a non income generating 20k negative equity hole into a debt which they can charge on.

If they default, it makes no difference to nationwide which way they default, as nationwide would still be 20k down either way. So nice little money earner for Nationwide.

The point of the exercise is to reduce mortgage exposure for the NW.

Say a couple have a £250k three bed house with a £270k mortgage on an interest only basis.

Moving to a 2 bed flat worth £180k. Would enable the couple to reduce their mortgage exposure by say £60k allowing for costs.

By reducing their mortgage the couple could move onto a repayment mortgage from interest only. Helps the borrower and reduces NW's exposure.

A by product is that it keeps the property market moving. Between 2003 -2007 around a quarter of all mortgage advances were on i/o basis.

baileysbattlebus

adrian_bond wrote: »

hi everyone,

Forgive me if this is wrong, as I was just turning about 9 when the last crash / recession hit...but didn’t mortgage lenders do this last time around the end of the recession so that people could move etc and the market to stabilize?

I may be totally wrong on this, but even tho it will mean massively more debt for some, it would allow homes to change hands once more, and stimulation of a failing system could only be a good thing? could this move signal the smallest glimpse of a green root, instead of shoots?

Please correct im if im wrong. Cheers.

I was grown up and a homeowner during the last crash and yes, some lenders did let people "port" their negative equity to another property / mortgage. It's not new.

I don't know what the take up will be from existing Nationwide customers, but I can't see it being a bad thing - if you can afford it and a lot will be able to - just because you're in negative equity doesn't mean you are on your beam ends or anything.

whathavewedone

I don't see anything wrong in this. I thought this would happen once the house price drops started to slow down as was the case in the mid 1990s.

Apologies to those who have read this anecdote before as I know I've rolled it out before on these sorts of threads, but in 1996 my sister sold her 1 bed flat in South East London for about 20k less than she paid for it (sold for around 40k I think) and bought a 4 bedroom house in Tunbridge Wells for 90k. She brought her negative equity with her, borrowed the additional money needed AND some money to do it up as well. She sold it in around 2000 for £250k so the bank lost nothing.

It just enables people who are already in negative equity to move which is a good thing. There must be a lot of people who started a family in a small flat just before the bubble burst assuming they'd have no problem moving when buster turned 6 months. This mortgage helps people in that sort of position.

I've just seen Thrueglemir's post about this mortgage enable people to downsize to reduce their debt too - not something I'd thought about but it's a very good point.

Thrugelmir

whathavewedone wrote: »

I don't see anything wrong in this. I thought this would happen once the house price drops started to slow down as was the case in the mid 1990s.

Apologies to those who have read this anecdote before as I know I've rolled it out before on these sorts of threads, but in 1996 my sister sold her 1 bed flat in South East London for about 20k less than she paid for it (sold for around 40k I think) and bought a 4 bedroom house in Tunbridge Wells for 90k. She brought her negative equity with her, borrowed the additional money needed AND some money to do it up as well. She sold it in around 2000 for £250k so the bank lost nothing.

It just enables people who are already in negative equity to move which is a good thing. There must be a lot of people who started a family in a small flat just before the bubble burst assuming they'd have no problem moving when buster turned 6 months. This mortgage helps people in that sort of position.

I've just seen Thrueglemir's post about this mortgage enable people to downsize to reduce their debt too - not something I'd thought about but it's a very good point.

The issue this time round is that more people have over extended themselves. So aren't in a position to make significant inroads into repaying capital. So rather than upsizing are more likely trying to downsize.

Also interest only mortgages are far more common. In years gone by you had to have a proven repayment mechanism.

Though reduced endowments payouts are another problem for a lot of people. Not good on top of reduced property prices. As only compounds the problem.

geoffky

the 7% rates are the killer for me...i have spoken to them today about this and they have said it will be for a select few who are not struggling with payments and who have a clear margin as far as wages/debt goes...i stll withdrew 1/2million because the rates are terrible..got the 5% with Newcastle bs with 90 days notice and Skipton 4% until feb 10....

Thrugelmir

geoffky wrote: »

the 7% rates are the killer for me...i have spoken to them today about this and they have said it will be for a select few who are not struggling with payments and who have a clear margin as far as wages/debt goes...i stll withdrew 1/2million because the rates are terrible..got the 5% with Newcastle bs with 90 days notice and Skipton 4% until feb 10....

Seems rather risky putting your funds into only 2 different BS.

Newcastle may well have problems like West Brom. ( and I don't mean their football teams )

bo_drinker

So they are aiming this at customers in N E. N E = problem, throw more money at problem and prices could and probably still drop. Now I don't know much about the world of finance but it seems crazy to me, or am I missing something

Generali

bo_drinker wrote: »

So they are aiming this at customers in N E. N E = problem, throw more money at problem and prices could and probably still drop. Now I don't know much about the world of finance but it seems crazy to me, or am I missing something

If you throw enough cash at the NE problem then it will go away. The question then becomes is your credit rating and desire to remain in 'your' home important enough to you to pay that money out? With the laws as they stand in the UK, it is only worth walking away if you also go bankrupt IMO.

bo_drinker

Generali wrote: »

If you throw enough cash at the NE problem then it will go away. The question then becomes is your credit rating and desire to remain in 'your' home important enough to you to pay that money out? With the laws as they stand in the UK, it is only worth walking away if you also go bankrupt IMO.

Sorry I am being thick, how does it go away?? when you have 1 bldg soc offering it in the UK and prices are still going down albeit not as fast as could be if there was more stock. Surely N E is going one way and more credit goes the other way

Generali

bo_drinker wrote: »

Sorry I am being thick, how does it go away?? when you have 1 bldg soc offering it in the UK and prices are still going down albeit not as fast as could be if there was more stock. Surely N E is going one way and more credit goes the other way

I mean if you pay down enough of your mortgage (eg get a second job/Missus goes out to work/sell other assets) then you are no longer in Negative Equity.

The alternative which many chose in the 1990s is to walk away from the house and mortgage. As some of them discovered, that isn't a cost free option.