Why are banks not offering high interest mortgages?

ILW

Seems to be a lot of complaining from potential buyers that they cannot get a mortgage due to requiring large deposits. In the normal demand and supply situation I cannot see why some of the banks are not offering mortgages at say 10% rates with a small deposit to these people. A rate that high should overall mitigate the risks associated with low deposits.

Mini_Bear

not when interest rates are virtually zero. so if interest rates went from 0.5 to 5%, your 10% mortgage would be 14.5%
Ouch - repossession.
Also i imagine 10% interest on a mortgage becomes unserviceable even on a relatively small mortgage of 100k (here in the south east). Thats 10k per yr (833/mth) in interest payments without even considering the repayment part.
In theory ur point makes sense, but in practise people want to spend all their money on new cars, holidays and handbags

chucky

ILW wrote: »

Seems to be a lot of complaining from potential buyers that they cannot get a mortgage due to requiring large deposits. In the normal demand and supply situation I cannot see why some of the banks are not offering mortgages at say 10% rates with a small deposit to these people. A rate that high should overall mitigate the risks associated with low deposits.

because they'd rather make 3%-4% or even 5% 'safe' profit on lending to someone less risky.

there isn't enough money to lend to everyone so they're only lending to less risky borrowers.

ILW

chucky wrote: »

because they'd rather make 3%-4% or even 5% 'safe' profit on lending to someone less risky.

there isn't enough money to lend to everyone so they're only lending to less risky borrowers.

I would have thought that if the profit was high enough to cover the risk it would be a popular market. Bit like payday loans.
After all there are plenty of unsecured loans about at 15% or more available to people who are steadily emplyed and have a decent credit record.

chucky

ILW wrote: »

I would have thought that if the profit was high enough to cover the risk it would be a popular market. Bit like payday loans.
After all there are plenty of unsecured loans about at 15% or more available to people who are steadily emplyed and have a decent credit record.

the retail banks principle business isn't about making money out of repossessing homes or chasing people down for money or the risk of that happening

their business is to make money on the difference between borrowing and saving money.

higher risk lending is only good for them in 'boom' times as the risk of default is lower

ILW

chucky wrote: »

the retail banks principle business isn't about making money out of repossessing homes or chasing people down for money or the risk of that happening

their business is to make money on the difference between borrowing and saving money.

higher risk lending is only good for them in 'boom' times as the risk of default is lower

I was not suggesting lending to high risk borrowers, but low risk borrowers who are not able to come up with a £30-40k deposit. Possibly a 5% deposit and then 10% fixed rate for say 5 years with a high ERC would be a perfectly sound business model.

Dan:_4

ILW wrote: »

I would have thought that if the profit was high enough to cover the risk it would be a popular market. Bit like payday loans.
After all there are plenty of unsecured loans about at 15% or more available to people who are steadily emplyed and have a decent credit record.

Unsecured loans will always have a higher rate as they have no assets to seize if you default on the repayments.

You can currently get mortgage products requiring 10% deposit at rates between 5-6% which isn't bad I think.

ILW

Dan: wrote: »

Unsecured loans will always have a higher rate as they have no assets to seize if you default on the repayments.

You can currently get mortgage products requiring 10% deposit at rates between 5-6% which isn't bad I think.

Why are so many complaining that they cannot buy due to not being able to raise the deposit then?

Dan:_4

ILW wrote: »

Why are so many complaining that they cannot buy due to not being able to raise the deposit then?

Don't know. Maybe they can't even raise the 10% deposit. Or maybe they don't want to pay the 5.98% rate as offered by Nationwide for 90% mortgages as rates are much cheaper if you have a larger deposit.

What you are suggesting is true, smaller deposits = higher rates. But not 10% - they are around 6%

movilogo

That works on a market where house price is rising. Banks can mitigate their losses by repossession and selling the property subsequently (which appreciated in price) and recovering the money.

The loss from borrower will be balanced by sale of house.

In a falling market, banks will lose twice - first borrowers not paying and then even if repossessed, the house may be sold at a loss. Thus double whammy for banks.

So banks are avoiding people who can't save enough for a good deposit.

Remember, banks are not stupid (well they learnt from their mistakes) and they will always work in their interest rather than house owners.

chucky

ILW wrote: »

I was not suggesting lending to high risk borrowers, but low risk borrowers who are not able to come up with a £30-40k deposit. Possibly a 5% deposit and then 10% fixed rate for say 5 years with a high ERC would be a perfectly sound business model.

it's not a good business model when you can lend to someone at 50%-60% LTV on a 3 times salary or evn 75% LTV on 3 times salary.

why would you lend to someone at 90% when you can lend with much less risk.