How much new money is available for mortgages today.

Thrugelmir

abaxas wrote: »

The problem is that mortgages used to be priced to make money from churn when now companies actually require proper underwriting.

Some lenders have always maintained high underwriting standards.

julieq

Actually the research shows that UK lenders don't price risk into rates to any great extent, because (a) they don't have to (defaults are very low) (b) in increasing rates to those in risk of default you tend to increase the probability of default, and (c) most borrowers who are risky tend not to borrow too much because they're concerned about defaulting.

There's a great paper on the subject which I linked to a few weeks ago. It doesnt support the contention that there was "reckless" lending in the UK though. There's not a shred of evidence of that. In the US, certainly, but not here.

I had to laugh at the original post though. "Bulls keep out while I invent a statistic on gut feel.... we have 50% lending capacity in comparison with 2007. FACT".

Graham_Devon

julieq wrote: »

There's a great paper on the subject which I linked to a few weeks ago. It doesnt support the contention that there was "reckless" lending in the UK though. There's not a shred of evidence of that. In the US, certainly, but not here.

So 125% wasn't reckless?

julieq

No it wasn't Graham.

Look at it this way. You can borrow at 4% for 125% of the value of your house, or you can borrow 90% of the value of your house at 4% and rack up unsecured borrowing of 35% of the value of your house on credit cards at 20% APR.

Which borrower is at more risk of default?

In order to demonstrate that high LTV lending is reckless, you have to remove unsecured lending, and you have to show that lending 125% has led systematically to defaults. which the numbers don't show. It leads to negative equity, it's not something I would do myself, you may not like it, but that doesn't make it bad.

Thrugelmir

julieq wrote: »

Actually the research shows that UK lenders don't price risk into rates to any great extent, because (a) they don't have to (defaults are very low) (b) in increasing rates to those in risk of default you tend to increase the probability of default, and (c) most borrowers who are risky tend not to borrow too much because they're concerned about defaulting.

No one has mentioned pricing risk. That's a totally different issue to poor lending policy adopted by a number of UK retail lenders. Going to be a few more years yet before the final result will be known.

Graham_Devon

julieq wrote: »

No it wasn't Graham.

Look at it this way. You can borrow at 4% for 125% of the value of your house, or you can borrow 90% of the value of your house at 4% and rack up unsecured borrowing of 35% of the value of your house on credit cards at 20% APR.

Which borrower is at more risk of default?

In order to demonstrate that high LTV lending is reckless, you have to remove unsecured lending, and you have to show that lending 125% has led systematically to defaults. which the numbers don't show. It leads to negative equity, it's not something I would do myself, you may not like it, but that doesn't make it bad.

Right. So, no amount of lending is ever risky, is you base your assumption of risky lending, on riskier lending?

Percy1983

julieq wrote: »

No it wasn't Graham.

Look at it this way. You can borrow at 4% for 125% of the value of your house, or you can borrow 90% of the value of your house at 4% and rack up unsecured borrowing of 35% of the value of your house on credit cards at 20% APR.

Which borrower is at more risk of default?

In order to demonstrate that high LTV lending is reckless, you have to remove unsecured lending, and you have to show that lending 125% has led systematically to defaults. which the numbers don't show. It leads to negative equity, it's not something I would do myself, you may not like it, but that doesn't make it bad.

Interesting point, but you miss a big point there, go over to the credit cards board and you will see they aren't giving out credit cards like sweets any more.

So before you could run up credit cards then buy a house with 125% mortgage to clear said credit cards and then build them up again.

That won't work now.

julieq

Well you can't get 125% mortgages now either.

So what's your point?

ManAtHome

Dunno about capacity, but as Thrugelmir and wotsthat posted, there has been very little expansion of mortgage debt over the last few years (less than 1% a year).

Kennyboy66

julieq wrote: »

Actually the research shows that UK lenders don't price risk into rates to any great extent, because (a) they don't have to (defaults are very low) (b) in increasing rates to those in risk of default you tend to increase the probability of default, and (c) most borrowers who are risky tend not to borrow too much because they're concerned about defaulting.

There's a great paper on the subject which I linked to a few weeks ago. It doesnt support the contention that there was "reckless" lending in the UK though. There's not a shred of evidence of that. In the US, certainly, but not here.
.

Northern Rock.

So prudent they had to fiddle the figures when reporting them to the CML & FSA.

In May 2009 - 3.2% of their customers were in arrears and 30% (yes thirty percent) in negative equity


I would think they just about hit the mark as reckless and border line fraudulent (in that they could only borrow short as the rates they did because they had previously mis-reported arrears figures as being less than the CML average).

What a laughable assertion.