The Return Of Sub-Prime Lending.

Generali

Rinoa wrote: »

Spot on.

Indeed the NR 'bad bank', created by the govt.and containing all the sub-prime, recently announced profits of £350M for the first 6 months of this year.

Easy to see why investors are moving back into this market.

The accountants took a conservative view of possible losses on the 'bad Northern Rock' loan book and so wrote down the value of the book pretty aggressively. When those loses didn't materialise, a fat profit was made. It's known as 'kitchen sinking', that is to say that you book all of the losses you possibly can at the books in an accounting period and then book a series of profits later. It's called that because you throw everything including the kitchen sink at the losses.

It's a bit misleading to look at the P&L of 'Bad Northern Rock' as it isn't a trading entity, it's being wound down and any profit and loss will come as a result of accounting practices as much as genuine cash flowing into and out of the business. They aren't making a profit in the same way that most people would understand it, that is selling something for more than it was bought for.

UnderPressure

I agree with the comments made on the original article that the whole credit profile system is in dire need of a drastic overhaul, the fact that somebody who had 1 late payment on a credit card say 9 months ago would be refused mainstream lending is quite frankly ridiculous in the first place, as are the level of deposits being demanded by the high street lenders at the moment but that is a whole new thread.

I am no expert at all when it comes to mortgages and such, I myself have had a terrible time over the last few years financially due to a failed business and in hindsight my one saving grace was that I did not own any property and still dont so it is fair to say I am certainly not the best informed when it comes to things like this, from my perspective as "joe bloggs general public" this can only be a good thing but only if the level of deposits are to be reduced as well the historical 10-20% was always a much much better benchmark than some of the quite frankly absurd amounts being demanded by the high street, it is them that made the mistakes and it is them that caused the majority of these problem through sheer greed, I understand and appreciate they need to protect themselves for such future mistakes but not at the cost of a whole generation!

For me that is the problem, this country has completely forgot that the generation of first time buyers ARE the future of the country not the middle aged who already have cushy mortgages and maybe the odd buy to let these people are insignificant if our country is to truly recover and move forward in a positive manner then there HAS to be opportunity for the younger generation to get onto the property ladder to begin with.

With spiraling crime, no jobs a dodgy at best house market and no offers of finance this younger generation in time will simply look elsewhere and with the amount of graduates sat on the dole they eventually will start to look at moving to other countries where there is an opportunity for them to make a life for themselves than all the UK will be left with is a bunch of middle aged folk who have no interest in anything apart from their own bank balances oh and of course the good old benefit crowd.

The UK no longer looks like such a rosy place to be, when you have imigrants going home because there is no opportunity things really could not get any worst, but as long as you middle aged lot with your bigh houses and next to nothing mortgages can sit on your pedastools and judge everyone else then all will be fine.............................................. Me thinks not!

andykn

Graham_Devon wrote: »

Who could get a 125% mortgage....before it was created?

Lots of people, it was quite easy to get a 95% mortgage and then borrow more seperately unsecured.

ninky_2

when i was turned down for a mortgage by a high street building society(self employed) a friend of my OH put me in touch with a broker. this broker said he could get me a million pound mortgage if i wanted. he used his own accountant to sign off income declarations, charged a massive fee and applied to lenders without too many checks - gmac and kensington.

i was lucky that my solicitor questioned my need to get a mortgage from a sub prime lender. i still ended up with a self cert product but one from a more conventional lender and one that wouldn't tie me in with massive erps and an ever increasing interest rate.

i'd warn people to steer clear of the likes of kensington mortgages. if i'd stayed with them my rate would have rocketed to around 8 percent.

i'm more financially savvy these days (thanks mse!) and as a result of not being tied into a dodgy product i'm now on a conventional product tracking the base rate + 0.5 percent and offering fantastic flexibility.

the problem with sub prime lenders(or whatever the likes of kensington like to call themselves these days) is they not only target the less credit worthy they often create a situation where those who get their products are at increasing risk of defaulting due to high (and increasing) rates and riduculous redemption penalities.

what is interesting, however, is that these lenders are suggesting they are willing to lend when the value of their ultimate security (the property) looks likely to fall....unless they know something we don't.

datostar

andykn wrote: »

No, what caused Northern Rock to go down was the credit crunch, they borrowed short and lent long, once the credit markets froze they couldn't borrow the money to repay the last lot of 3 month loans they'd taken out on the money markets.

As far as I am aware NRs credit rating was no different from any other high street lender, they wouldn't have given you a mortgage if you were credit impaired (sub prime).

Exactly. They and HBOS loaned around £1.78 for every £1 of deposits held. The rest was borrowed. They thought it was a 'virtuous circle'. It was, until it turned vicious. One has to ponder on the wisdom of lending over 25 years and borrowing over a maximum of 3 years to fund it, knowing that it will have to be refinanced at least 8 times.

Generali

datostar wrote: »

Exactly. They and HBOS loaned around £1.78 for every £1 of deposits held. The rest was borrowed. They thought it was a 'virtuous circle'. It was, until it turned vicious. One has to ponder on the wisdom of lending over 25 years and borrowing over a maximum of 3 years to fund it, knowing that it will have to be refinanced at least 8 times.

In that case the US model of debt securitization should be much safer. It hasn't turned out that way in practice.

It is easy to criticize the 'borrow short, lend long' model of banks. The alternative is 3 year mortgages that you have to try to refinance regularly. That was how mortgages worked in the 1930s in the USA and was a big factor in exacerbating the spiral of falling asset prices-foreclosure-bank losses. You can't refinance you mortgage if you are in negative equity and why would you want to?

MiserlyMartin

UnderPressure wrote: »

.......

For me that is the problem, this country has completely forgot that the generation of first time buyers ARE the future of the country not the middle aged who already have cushy mortgages and maybe the odd buy to let these people are insignificant if our country is to truly recover and move forward in a positive manner then there HAS to be opportunity for the younger generation to get onto the property ladder to begin with.

With spiraling crime, no jobs a dodgy at best house market and no offers of finance this younger generation in time will simply look elsewhere and with the amount of graduates sat on the dole they eventually will start to look at moving to other countries where there is an opportunity for them to make a life for themselves than all the UK will be left with is a bunch of middle aged folk who have no interest in anything apart from their own bank balances oh and of course the good old benefit crowd.

The UK no longer looks like such a rosy place to be, when you have imigrants going home because there is no opportunity things really could not get any worst, but as long as you middle aged lot with your bigh houses and next to nothing mortgages can sit on your pedastools and judge everyone else then all will be fine.............................................. Me thinks not!

This is all very true and my long term plan is to move abroad. There is not much good about the UK these days regardless even if house prices return to affordable sensible levels.