Northern Rock going bust question

WTF?_2

tlck9 wrote: »

I've heard that NR lending policy is one of the best...

I understand that the problems in America knocking the share index down, a series of investments that havent done as well and them not being able to access funding from the markets due to the low prices have cuased the problem

Certainly not to do with bad lending - i think it was reported they have one of the lowest default....meaning that they will lend to poeple with good history and perhaps not be so competitive for risky prospects or certainly not lend so much to others with not quite so high credit rating

NR were famous for 'quality' lending such as 125% LTV and 'self certification' mortgages. They were also known for going to higher salary multiples than other lenders would. No wonder they sold so many mortgages to a public desperate to buy expensive property.

We'll see how good their mortgage book is when house prices are no longer increasing at 10-15% pa. I suspect that the long term viability of their cunning plan to borrow cheap money and securitize the debts is the reason why no-one else in the finance world will now lend to them and they had to go running to the Bank of England to keep their business going.

tlck9

!!!!!!? wrote: »

No wonder they sold so many mortgages to a public desperate to buy expensive property.

We'll see how good their mortgage book is when house prices are no longer increasing at 10-15% pa.

To be honest halifax were giving higher income multiples! and what you also have to consider is that in some areas like Cornwall people are paying more in rent than a mortgage just because they cannot get a mortgage - so as long as they have planned finances within budget there shouldnt be a problem

My issue was that my partner hasnt been self employed long enough and I'm getting a better rate with my savings than on a mortgage so I'm better with a higher mortgage and more savings!!!

inmypocketnottheirs

!!!!!!? wrote: »

NR were famous for 'quality' lending such as 125% LTV and 'self certification' mortgages. They were also known for going to higher salary multiples than other lenders would. No wonder they sold so many mortgages to a public desperate to buy expensive property.

We'll see how good their mortgage book is when house prices are no longer increasing at 10-15% pa. I suspect that the long term viability of their cunning plan to borrow cheap money and securitize the debts is the reason why no-one else in the finance world will now lend to them and they had to go running to the Bank of England to keep their business going.

Exactly my point.

HelpWhereIcan

!!!!!!? wrote: »

NR were famous for 'quality' lending such as 125% LTV and 'self certification' mortgages. They were also known for going to higher salary multiples than other lenders would. No wonder they sold so many mortgages to a public desperate to buy expensive property.

We'll see how good their mortgage book is when house prices are no longer increasing at 10-15% pa. I suspect that the long term viability of their cunning plan to borrow cheap money and securitize the debts is the reason why no-one else in the finance world will now lend to them and they had to go running to the Bank of England to keep their business going.

inmypocketnottheirs wrote: »

Exactly my point.

Which shows that you have been reading the headines, but no idea of what Northern Rock's critera/lending policy is or how it compares to other lenders.

A lender can be a responsible lender and provide 125% mortgages etc, it all comes down to how they underwrite the application.

Northern Rock would not accept someone with any previous payment problems. Their credit score has been known for sometime to be one of the toughest.

The large multiples they were offering tended to be to people on high (proven) incomes with high credit scores - no different to any other lender and more selective than most. The amount they would lend is generally not significantly higher than available elsewhere and often less than places like A&L, Halifax and Royal Bank of Scotland will do.

More often than not, they would only offer the higher multiples to customers taking a fixed rate of 5 years or more - increasing the stability of payments for the customer and the security of their loan book.

The 125% mortgage are normally 90% mortgages (depending on deal it could be 95% or maybe 75%) with an unsecured loan of no more than £30,000 to take it up to a maximum of 125%. The 125% therefore only applies to properties valued at around £100,000 or less.

eg If you were buying a property worth £150000, the most you could borrow is:

95% as a mortgage - 142500
max £30,000 loan - 30000
total 172500 = 115%

On repossession, NR would in theory only have a £17,500 personal loan left over to pursue as a shortfall over and above that of any other 100% lender (or even the Halifax at 97% with 2-3% worth of fees added on) would have.

Self Cert or Fast Track is only available to people with a Medium or High Credit Score. Not available to First Time Buyers and only available where the property is worth more than £100,000 and there is more than 15% deposit/equity.

The problems NR had financing new lending was not that there have been any problems with the lending they have granted in the past, but that lenders have stopped lending to eachother at the same levels as before.

Northern Rock were more reliant on this source than most and therefore were more affected. Banks were not refusing to lend to Northern Rock, they were refusing to lend to anyone.

Remember they have yet to draw on any on the money agreed by the Bank of England and the money withdrawn in the last few days amounts to around 10% of the savings they held on deposit.

You may not agree with securitisation, 100% lending, Buy to Let, Self Cert etc etc, but that does not mean that the N Rock were irresponsible with the way they loaned money.

Oh yes, the 're-sets' that are due now (why HPC keeps adopting American terms I don't know) will actually be no more of a problem to Northern Rock than any other lender.

In fact, a large % of Northern Rock's business where they did more than 4 times income will be on fixed rates of 5 years or more which means that most people who have borrowed from them in the last 2-3 years will have a couple of years yet on a fixed rate. Whether they appreciate that if rates drop next year will be another thing!!!!!

norangeduck

O dear all this NR stuff is worrying me - we have a variable rate mortgage, and People are saying the rates are gonna go up (again) - though not sure if we should or even can change now - we were gonna wait untill we came into some money from another house sale, but we dont no when it is gonna sell - its already been on market for 9 months with no interest - and put this down as a bigger deposit
But is it worth changing now, even with no extra money??? (we got 100% mortgage u see)
ANY advice is greatly received!!!
Thanks

dunstonh

O dear all this NR stuff is worrying me

Yes. The way the media has reported this is disgraceful and a worrying trend.

People are saying the rates are gonna go up (again)

Rates go and up and they go down. Current trend looks downward. It can change quickly as just two months ago the trend looked upward.

knowledgeman

The press were crying out for norther rock to go bust and have done their best to create panic

Northern rock will not go bust and anyone with the sense to buy shares up front when it reached its low and willing to hold onto them for a while could treble their money when the prices recover

sikejsudjek

HelpWhereIcan wrote: »

Which shows that you have been reading the headines, but no idea of what Northern Rock's critera/lending policy is or how it compares to other lenders.

A lender can be a responsible lender and provide 125% mortgages etc, it all comes down to how they underwrite the application.

Northern Rock would not accept someone with any previous payment problems. Their credit score has been known for sometime to be one of the toughest.

The large multiples they were offering tended to be to people on high (proven) incomes with high credit scores - no different to any other lender and more selective than most. The amount they would lend is generally not significantly higher than available elsewhere and often less than places like A&L, Halifax and Royal Bank of Scotland will do.

More often than not, they would only offer the higher multiples to customers taking a fixed rate of 5 years or more - increasing the stability of payments for the customer and the security of their loan book.

The 125% mortgage are normally 90% mortgages (depending on deal it could be 95% or maybe 75%) with an unsecured loan of no more than £30,000 to take it up to a maximum of 125%. The 125% therefore only applies to properties valued at around £100,000 or less.

eg If you were buying a property worth £150000, the most you could borrow is:

95% as a mortgage - 142500
max £30,000 loan - 30000
total 172500 = 115%

On repossession, NR would in theory only have a £17,500 personal loan left over to pursue as a shortfall over and above that of any other 100% lender (or even the Halifax at 97% with 2-3% worth of fees added on) would have.

Self Cert or Fast Track is only available to people with a Medium or High Credit Score. Not available to First Time Buyers and only available where the property is worth more than £100,000 and there is more than 15% deposit/equity.

The problems NR had financing new lending was not that there have been any problems with the lending they have granted in the past, but that lenders have stopped lending to eachother at the same levels as before.

Northern Rock were more reliant on this source than most and therefore were more affected. Banks were not refusing to lend to Northern Rock, they were refusing to lend to anyone.

Remember they have yet to draw on any on the money agreed by the Bank of England and the money withdrawn in the last few days amounts to around 10% of the savings they held on deposit.

You may not agree with securitisation, 100% lending, Buy to Let, Self Cert etc etc, but that does not mean that the N Rock were irresponsible with the way they loaned money.

Oh yes, the 're-sets' that are due now (why HPC keeps adopting American terms I don't know) will actually be no more of a problem to Northern Rock than any other lender.

In fact, a large % of Northern Rock's business where they did more than 4 times income will be on fixed rates of 5 years or more which means that most people who have borrowed from them in the last 2-3 years will have a couple of years yet on a fixed rate. Whether they appreciate that if rates drop next year will be another thing!!!!!

That would be why their share price is again falling - and why no one wants to buy them except at a very low share price ? What wonderful assets they must have on their loan book ! Obviously the city don't buy this blatant spin.

I have a good credit history - there would be no problem for me getting a fast track mortgage I couldn't pay back. NR even had a banner up saying 'open for subprime business' on their website until recently. Says it all really.

They are toast due to lax lending.

catwoman150

I have a mortgage with Northern Rock, so what happens when they get taken over. Which I think is very likely. I know that I have to keep paying it and my mortgage is fixed till 2009. Would we get shares with the bank/ building society that takes over? Would the interest rate double over night as well? When its time to remortgage?

HelpWhereIcan

sikejsudjek wrote: »

That would be why their share price is again falling - and why no one wants to buy them except at a very low share price ? What wonderful assets they must have on their loan book ! Obviously the city don't buy this blatant spin....

...NR even had a banner up saying 'open for subprime business' on their website until recently. Says it all really.

They are toast due to lax lending.

:rotfl: :rotfl:

HPC strikes again.

The 'open for subprime business' banner is talking about the range they offer that is funded by Lehman Brothers - the range that is basically a whitelabel of SPML. It's not their money they are lending and the loans go straight to Lehman Brother - Northern Rock do not have to take the risk themselves or securitise them on.

The reason their shares have not fallen to the level where they have been suspended is the strength of their proposition. The mortgage book that they have retained as opposed to securitised on is thought to be value the company at 185p / share on it's own.

That ignores the commercial land it owns, the value of it's unsecured loan book, investment income etc etc.

The "spin" that you are so desperate to be there can be backed up - what have you other than picking up on the term sub prime?
From their interim accounts this year:

Credit quality remains robust. 0.47% of mortgage accounts 3 months or more in arrears (31 December 2006 - 0.42%) - around half of industry average

http://companyinfo.northernrock.co.uk/investorRelations/results/stockEx070725.asp

http://www.cml.org.uk/cml/statistics

Look at the accounts statement to see how reliant they are upon securitisation and bonds to raise funds to lend and then extrapolate the effect that a 'credit crunch' would have on their ability to raise funds to lend.

Look at the fact that they are still underwriting and offering cases and that the cases that are being done now have funding available - it's raising the money to fund the next round of lending that has been the issue not getting money to meet their current lending obligations.

Share price is bound to remain volatile posing a risk to anyone who invest now, but that is something that may change if/when a buyer comes along and/or the money markets being to ease.

The reason for the fall this morning was speculation that a deal is on the table at less than £2/ share - not a sign of collapse... Unless you believe that anyone looking to buy now will actually resist the urge to take advantage of the current situation to get a bargain they would not have go a week ago (or indeed if the facts had been better reported).

sikejsudjek wrote: »

I have a good credit history - there would be no problem for me getting a fast track mortgage I couldn't pay back.

And did you?

The point is that the people N Rock would lend to would not generally not use the fast track facility to get more than they could afford. They profile their customers (through credit scoring etc) pretty well.

There will always be some who have applied fraudulently, but Northern Rock will be one of the lenders with fewer than some.

As I said, just cos you do not agree with Fast track etc and have no need for it yourself, does not mean that it is abused as often as you think.

I love HPC