More Like Canada

Charterhouse

http://american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system

I think it is safe to say that the global financial system is going to get a redux, Canada style. There are a few important differences in the Canadian mortgage market that made the system safer over the past few years;-

1. Full recourse mortgages (we have these here already)
2. Shorter fixed rates (we have these here already)
3. More mortgage insurance (a good idea, especially for high LTV mortgages)
4. Mortgage interest not tax deductible (only true for BTL here, probably fine)
5. Higher prepayment penalties (we have these here already)
6. Higher retained loans on balance sheet (hmm, we used to have this, before we became dependent on securitisation...)

I think it's highly likely that the financial world and the mortgage market start looking more like the Canadian model, for us this probably means a limit to very high LTV lending and a requirement to hold mortgage insurance for an LTV over 80% - the premium is paid upfront.

Jonbvn

But the article is a comparison beween the USA and Canada?

Historically, I would expect Canada to be more similar to the UK than USA anyway?

Charterhouse

Yep, it's comparing the US and UK, hence I've put my points in brackets. Still quite a few changes, for the more conservative, that might be on the way.

ses6jwg

Blame Canaaaaada!

baileysbattlebus

Charterhouse wrote: »

http://american.com/archive/2010/february/due-north-canadas-marvelous-mortgage-and-banking-system

I think it is safe to say that the global financial system is going to get a redux, Canada style. There are a few important differences in the Canadian mortgage market that made the system safer over the past few years;-

1. Full recourse mortgages (we have these here already)
2. Shorter fixed rates (we have these here already)
3. More mortgage insurance (a good idea, especially for high LTV mortgages)
4. Mortgage interest not tax deductible (only true for BTL here, probably fine)
5. Higher prepayment penalties (we have these here already)
6. Higher retained loans on balance sheet (hmm, we used to have this, before we became dependent on securitisation...)

I think it's highly likely that the financial world and the mortgage market start looking more like the Canadian model, for us this probably means a limit to very high LTV lending and a requirement to hold mortgage insurance for an LTV over 80% - the premium is paid upfront.

I thought we had or used to have mortgage insurance - called mortgage indemnity insurance - years ago we had a high LTV mortgage and a pre requesite was indemnity insurance incase we defaulted. It was for about 25% of the value of the loan if I remember correctly. And the premium was paid up front.

I thought most lenders had this as mandatory above a certain LTV - varied by lender - is this not the case now?

Charterhouse

baileysbattlebus wrote: »

I thought we had or used to have mortgage insurance - called mortgage indemnity insurance - years ago we had a high LTV mortgage and a pre requesite was indemnity insurance incase we defaulted. It was for about 25% of the value of the loan if I remember correctly. And the premium was paid up front.

I thought most lenders had this as mandatory above a certain LTV - varied by lender - is this not the case now?

My understanding is that it's nowhere near as prevalent or as high coverage as the Canadian model.

CLAPTON

indemnity insurance was dropped as it was seen as yet another rip off.

yes the lender was indemnified against the borrower defaulting but the poor old borrower was then pursued for the full amount of default by the indemnifer