UK’s ‘bad bank’ warns 1% rate rise could sink 15,000 customers

Thrugelmir

Fine line being tread

Up to 10% of mortgage borrowers at the old Northern Rock and Bradford & Bingley would struggle to repay loans if interest rates went up by just one percentage point.

UK Asset Resolution, the body formed to unwind the businesses of the two now-defunct lenders and known as the UK’s ‘bad bank’, admits it is concerned about a sharp rise in rates.

http://www.standard.co.uk/business/uk-s-bad-bank-warns-1-rate-rise-could-sink-15000-customers-a3579356.html

debtisnotme

How do they know?

AG47

We know things are bad when this temporary low interest rate has been going for so long now, and if even a little raise willl cause so many problems, what about when interest rates go back to normal levels?

LHW99

We know things are bad when this temporary low interest rate has been going for so long now, and if even a little raise willl cause so many problems, what about when interest rates go back to normal levels?

And how about the non-normal levels (up to 15% I remember)?

Sapphire

Thrugelmir wrote: »

Fine line being tread

Given how much people have been encouraged to incur massive debt on the 'never-never', often to buy things that are by no means a necessity (constant 'remodelling' of houses, fripperies like handbags for hundreds of pounds, costly holidays and cars, etc.), without being taught about saving and the dangers of losing everything this is hardly a surprising 'revelation'.

I dread to think what will happen to those who have been seduced by the ceaseless in-your-face advertising, and who have never gone for saving, not incurring debt, or at least keeping it within limits so that it can be repaid (mortgages that have been thought through in terms of repayments). (It has already happened to someone in my family – and that's without a rise in interest rates.)

Still, I suppose the 'government' (aka taxpayers) can always bail out these 'deserving poor'.

always_sunny

Sapphire wrote: »

Given how much people have been encouraged to incur massive debt on the 'never-never', often to buy things that are by no means a necessity (constant 'remodelling' of houses, fripperies like handbags for hundreds of pounds, costly holidays and cars, etc.), without being taught about saving and the dangers of losing everything this is hardly a surprising 'revelation'.

Encouraged? Gullible people have always existed with low, high or mid interest rates.
Repos are also not something new.

Herzlos

The sad thing is that saving is currently pretty pointless - savings rates as far below inflation. I've got an ISA at 0.5% APR. It makes no sense to build up any savings (beyond a short rainy day fund) if you have any debt at all.

Not that borrowing through the nose for luxuries is a good idea either, but there's certainly no encouragement to save anything at the moment.

Sapphire

always_sunny wrote: »

Encouraged? Gullible people have always existed with low, high or mid interest rates.

It has been happening to a much greater extent than it used to, with lax controls on over-extended borrowing. Many people now seem to have no fear of getting into massive debt – they appear to think they live in some fairy-tale, with 'free' money available from all directions. Until quite recently, most people lived far more frugally than they do now.

kabayiri

Herzlos wrote: »

The sad thing is that saving is currently pretty pointless - savings rates as far below inflation. I've got an ISA at 0.5% APR. It makes no sense to build up any savings (beyond a short rainy day fund) if you have any debt at all.

Not that borrowing through the nose for luxuries is a good idea either, but there's certainly no encouragement to save anything at the moment.

On a hifi forum, I have seen announcements from guys who have cashed in ISAs with thousand in, only to buy expensive turntables; amplifiers; speakers.

Some have basically given up on this savings lark. They could have a point.

In future, anyone with savings will get less and less government support, but how do you view someone with no money but wardrobes full of posh clothes?

kabayiri

A bit controversial...but...aren't cycles in housing rates good for washing out those who can't really afford it, and bringing in new fresh custom?

michaels

So does the performance of this bundle of mortgages reflect the underlying position of borrowers?

I would argue not because:
1) These loans originally came from Bradford and Bingley and Northern Rock who were some of the loosest in their underwritting criteria (for example the 120% mortgage plus loan products sold by NR.
2) The loans are generally on legacy interest rates (ie very expensive) compared to what is available on the market today so anyone with average or better credit risk will have remortgaged elsewhere to save money.

Thus looking at the proportion of poor quality high risk over-leveredged borrowers who might default if their mortgage rate went from 5% to 6% probably has little bearing on what will happen in the overall market when payable rates go from 1.5% to 2.5%.