UK Subprime

Flight2quality

brit1234 wrote: »

Shared ownership/equity, 95%+ mortgages and self cert mortgages are our sub prime.

We still have cheap easy credit, when this has ended and the government can no longer pay so much housing benefit and keep paying interest on peoples mortgages, then repossessions will flood the auction rooms and we will have a free market price for property.

JonnyBravo

brit1234 wrote: »

Shared ownership/equity, 95%+ mortgages and self cert mortgages are our sub prime.

Oh the shame!!!!

I was sub-prime with my 95% mortgage.

Am I still sub-prime? Is it a tag you ever lose?

macaque_2

HAMISH_MCTAVISH wrote: »

Genuine Sub-prime is lending to people with exceptionally bad credit, such as the newly bankrupt or with serious current defaults, or the like of the American NINJA loans, (No Income No Job No Assets). Worse still, it was often at teaser rates of 1%, that automatically reverted to 5% plus after 2 years and this was often not explained to the recipients of the lending. The vast majority of these people have since defaulted.

As much as 30% of US lending in the last few years before the crash was to people in this category, hence the millions of repossessions in the States.

Of course such lending in the UK was so rare as to be virtually non-existent. Hence this article talks about the true arrears rate being 1.7% of mortgages, not 1.2%. Either way, a vanishingly small percentage, given the financial crisis, recession and massive increase in unemployment.

The truth is there was almost zero sub-prime lending in the UK.

That makes a lot of sense Hamish. What your are saying is that there are effectively two types of submerged borrowers.

Group 1 (not sub-prime)
These are innocent people who mistakenly borrowed much more than they could afford to pay back. For example people who borrowed 6X their income (and that was before the chick got preggers). They were let down by bad lending practices in the US which triggered credit problems in countries with more responsible lending practices (Iceland, Ireland, Spain, Portugal, Greece, Italy, UK). Clearly the banks (and if necessary the tax payer) have a duty to bail out people who borrowed more than they could afford.

Group 2 (sub-prime)
We all hate sub-prime borrowers (innocent victims of overborrowing sometimes refer to them as the mortgage nonces). The sub-prime group exaggerated their incomes or had defaulted on a credit payment at least once in their life. Fortunately, virtually all sub prime borrowers are US citizens (although a few of them came over here and contaminated our otherwise responsible lending market). Clearly but regrettably, it is also necessary to bail out sub prime borrowers in order to keep house prices artificially high. If we don't keep house prices artificially high, the daytime TV industry could be destroyed.

abaxas

All interest only mortgages are defined as sub prime as there is no repayment vehicle.

JonnyBravo

abaxas wrote: »

All interest only mortgages are defined as sub prime as there is no repayment vehicle.

Ah yes. Of course. So I am still sub-prime. Good to know I'm adding to the frothing statistics.

abaxas

JonnyBravo wrote: »

Ah yes. Of course. So I am still sub-prime. Good to know I'm adding to the frothing statistics.

I didnt make up the rules.

HAMISH_MCTAVISH

abaxas wrote: »

All interest only mortgages are defined as sub prime as there is no repayment vehicle.

Did you just make the truly remarkable assertion that not a single interest only mortgage has a repayment vehicle?

Wow.

HAMISH_MCTAVISH

abaxas wrote: »

I didnt make up the rules.

Well if you're claiming I/O mortgages are sub-prime, then you most certainly did.

That's a definition that exists only in your head.;)

abaxas

HAMISH_MCTAVISH wrote: »

Well if you're claiming I/O mortgages are sub-prime, then you most certainly did.

That's a definition that exists only in your head.;)

Shame GE money put it in there :P

Obviously one of the largest UK sub prime lenders was wrong to think they knew what sub prime was and I should believe a random internet poster from Aberdeen ahead of them.

Cleaver

abaxas wrote: »

All interest only mortgages are defined as sub prime as there is no repayment vehicle.

Do you have a link for this?

I think it's impossible to define sub-prime in a way that neatly summerises everything as each and every situation will be different. At the end of the day the term is really best used to describe lending sums of money to people where there is a high risk of them not paying it back. In addition to this the lending institution knew this (as was the case with a lot of lending in the US) or didn't due dilligent checks as they assumed house prices would go up for ever so if they had to repossess they'd still be quids in.

Let's take a pair of doctors in their late twenties who met, fell in love and bought a house in 2006. They had no deposit so they took a 100%, £130,000 mortgage to buy their first house. They had a combined income of £80,000 in secure jobs, excellent credit history and assumed they would earn more in the future. They had an offset mortgage which, technically, is interest only. In the last five years they've become more senior doctors, now earn £120,000 between them and have managed to pay off £40,000 of the mortgage and not missed a payment. Are they subprime? Technically, under your and Brit's definition they are. But I wouldn't say so in the spirit of the definition. They are people that were lent money that they could comfortably pay back.

At the same time a dodgy couple who faked their income back in 2006 to get a £200,000 repayment mortgage with a 20% deposit could be considered subprime if they never earned enough in the first place to pay the mortgage but the bank never checked correcly.

Basically, it's hard to apply technical terms to what is and isn't subprime, so you're best of thinking of it as money lent to people who shouldn't have been lent it in the first place.