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Guardian: 95% Mortgages "not a source of risk"

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  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
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    LydiaJ wrote: »
    If you are so keen to decrease BTL, then I think you should give some thought to why people buy them. Anecdotal evidence suggests that while there are some people who buy lots of them and make a job out of it, there are also loads of people who just get one, or maybe two at a pinch, as a sideline to their normal career. And the reason most of these people seem to give (well, the ones I've heard talking about it anyway) is that they see it as a good way to provide for their old age. Indeed, historically, we can see that the rise in BTL coincided not only with the erosion of tenants' rights in a series of changes to legislation, but also the demise of access to a decent pension at an affordable contribution rate for the vast majority of private sector workers. I don't think BTL is at all likely to decrease unless either (a) somebody puts in place a solution to the pension problem, and/or (b) the balance of tenancy rights shifts back towards the tenant and away from the landlord.

    I don't want to particularly decrease BTL. I would simply rather that BTL's didn't have head start advantages when it comes to borrowing money.

    For example, a BTL can still take an interest only mortgage. Pit a BTL up against a FTB on the same house and the BTL will ALWAYS have favoured affordability. The FTB (or any residential buyer come to that) always goes in at a disadvantage.

    We've therefore seen an increase in BTL lending. I'd prefer to see that advnatage reigned in and therefore, more lending would go towards residential buyers.
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    LydiaJ wrote: »
    Indeed, historically, we can see that the rise in BTL coincided not only with the erosion of tenants' rights in a series of changes to legislation, but also the demise of access to a decent pension at an affordable contribution rate for the vast majority of private sector workers.

    BTL came of age when Bradford and Bingley coined the phrase and copied the American concept of mortgage securitisation.

    Cheap funding provided the boom to BTL coupled with poor underwriting/lending criteria. The mass hysteria over the BOI rate rise suggests there's many self cert BTL borrowers with nowhere to remortgage to.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    I don't want to particularly decrease BTL. I would simply rather that BTL's didn't have head start advantages when it comes to borrowing money.

    For example, a BTL can still take an interest only mortgage. Pit a BTL up against a FTB on the same house and the BTL will ALWAYS have favoured affordability. The FTB (or any residential buyer come to that) always goes in at a disadvantage.

    We've therefore seen an increase in BTL lending. I'd prefer to see that advnatage reigned in and therefore, more lending would go towards residential buyers.

    comparing apples and pears

    one would image that banks don't judge FTBs affordability on how much the rental income might be

    and one would image that FTBs don't judge how much they are willing to spend buying the property on potential rental income either


    there is no shortgage of mortgage money as demonstrated by it's cheapness (very very very low interest rates);
    what is restricting the mortgage market is the government (FSA/BoE) rules and regulations that determine that most FTB are 'high risk'.
  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    CLAPTON wrote: »
    there is no shortgage of mortgage money as demonstrated by it's cheapness (very very very low interest rates);

    what is restricting the mortgage market is the government (FSA/BoE) rules and regulations that determine that most FTB are 'high risk'.

    Close, but not quite....

    There is a shortage of mortgages being issued to FTB-s.

    The primary cause of the shortage is a lack of money to lend to FTB-s.

    The cause of the lack of money to lend is primarily new legislation, and secondarily the ongoing dysfunction in wholesale lending markets.

    In other words, if capital withholding requirements for higher LTV lending were changed, there would be more mortgages issued, but it still wouldn't be enough.

    To enable housing need to be fulfilled, we'd need to also see a very significant uplift in the availability of funding from wholesale sources and/or the BOE.
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”

    -- President John F. Kennedy”
  • Thrugelmir
    Thrugelmir Posts: 89,546 Forumite
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    CLAPTON wrote: »

    there is no shortgage of mortgage money as demonstrated by it's cheapness (very very very low interest rates);
    what is restricting the mortgage market is the government (FSA/BoE) rules and regulations that determine that most FTB are 'high risk'.

    Lenders determined risk levels were too high well before FSA rules last year.

    Lloyds spend 5 months evaluating HBOS's mortgage book after the takeover in 2008. The end result was that around 30% of the book was found to be outside of Lloyds own risk profile, i.e. business they would never had conducted. Obviously could not call in these mortgages. So over the intervening period have progressively taken steps to reduce the exposure. Continuing to do so as they are one lender who are lending less.
  • grizzly1911
    grizzly1911 Posts: 9,965 Forumite
    CLAPTON wrote: »
    what is restricting the mortgage market is the government (FSA/BoE) rules and regulations that determine that most FTB are 'high risk'.


    Typically FTBs are high risk. High LTV FTBs even higher risk. Common sense really.

    Banks didn't need to be told by outside regulators that this was the case many moons ago.

    Risk analysis was a poor bedfellow in the "boom" times.
    "If you act like an illiterate man, your learning will never stop... Being uneducated, you have no fear of the future.".....

    "big business is parasitic, like a mosquito, whereas I prefer the lighter touch, like that of a butterfly. "A butterfly can suck honey from the flower without damaging it," "Arunachalam Muruganantham
  • Graham_Devon
    Graham_Devon Posts: 58,560 Forumite
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    CLAPTON wrote: »
    what is restricting the mortgage market is the government (FSA/BoE) rules and regulations that determine that most FTB are 'high risk'.

    High risk based on what though?

    The simple fact that they are FTB's? Or the amount of money they want to borrow?

    Very quickly you are back at high house prices causing issues.

    You can't simply state FTB's are high risk, as that's not really fair. They only judged to be high risk based on what they need to borrow. That is determined by prices.

    Reduce prices and FTB's become lower risks.

    As stated on here before when lending is always seen as the problem....it's high house prices which cause the need for higher (and therefore riskier) borrowing.
  • CLAPTON
    CLAPTON Posts: 41,865 Forumite
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    is there any evidence that FTB are high risk per se?

    certainly high LTV or poor affordability ratios will be higher risk
  • DervProf
    DervProf Posts: 4,035 Forumite
    Thrugelmir wrote: »
    BTL came of age when Bradford and Bingley coined the phrase and copied the American concept of mortgage securitisation.

    Cheap funding provided the boom to BTL coupled with poor underwriting/lending criteria. The mass hysteria over the BOI rate rise suggests there's many self cert BTL borrowers with nowhere to remortgage to.

    B & B also coined another phrase (which they later proved correct)........

    http://www.tellyads.com/show_movie.php?filename=TA2725

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  • HAMISH_MCTAVISH
    HAMISH_MCTAVISH Posts: 28,592 Forumite
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    Typically FTBs are high risk. High LTV FTBs even higher risk. Common sense really. .

    Except of course, that's just absolute nonsense.

    FTB-s are not "high" risk. They are slightly "higher" risk than 2TB.

    But the overall risk profile of both groups is exceptionally low.

    UK mortgage lending default rates are extremely low, which makes it one of the safest lending types in the World today.

    Under no circumstances can it be described as "high risk".
    High risk based on what though?

    The simple fact that they are FTB's? .

    Lending risk can be quantified into two factors.

    1) Probability of default.- The chances that a mortgage will stop paying.

    2) Impact of default.- The losses incurred by the lender if it does.

    The biggest reason by far for people stopping paying their mortgage is unemployment.

    And the LTV ratio does not in any way change the likelyhood that most people (90%+) will never lose their job, nor the likelyhood that most of the few who do will go on to get another job and eventually catch up on arrears.

    The impact of default is basically the percentage of the loan that can be recovered in a forced sale. Which even in most cases of repossession will be the vast majority of it.

    We know from the DCLG what the long term default rates are on UK mortgage lending, including this recession/crash, and the last recession/crash, it's the case that just 0.78% of mortgages issued end up in repossession. And banks recover somewhere around 80% of funds outstanding, on that 0.78% of repossessed houses.

    So the realised losses to banks, overall, are in the order of a quarter of a percent of funds loaned.

    Making UK mortgage lending overall an extremely low risk proposition for lenders. Even including all the slightly less low risk FTB, 125%, I/O, self-vert, etc that went on in the boom years.
    CLAPTON wrote: »
    is there any evidence that FTB are high risk per se?

    No.

    As the author of the report in the OP points out.

    95% mortgages are not a significant "source of risk".
    “The great enemy of the truth is very often not the lie – deliberate, contrived, and dishonest – but the myth, persistent, persuasive, and unrealistic.

    Belief in myths allows the comfort of opinion without the discomfort of thought.”

    -- President John F. Kennedy”
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