Recession affects on adverse mortgage

Hopkinson1

Hi everyone ! 

Love the forum, see some great advice on here and read it up each week. 

whats the general thinking on us now we’re in a recession ? Are adverse lenders going to tighten purse strings even more ? 

Me and the mrs have a 20% deposit now, just got the feeling this might not be enough still.

Thankyou !

amnblog

The biggest problem for adverse lenders is securing funding to lend.
In a recession, as more people have credit issues the adverse market demand would be expanding and funders may see it as a profitable avenue, increasing the funding options for adverse lenders.

Hopkinson1

Oh okay ! So potentially this may be good news ? 

Sibbers123

Recessions are never good news.... It will just mean lenders will want bigger deposits to prevent negative equity. As things stand, your 20% deposit should be okay as long as your credit rating isn't too bad.

stampystamp

Will this affect those of us who have already applied and are waiting on a decision?

Sibbers123

stampystamp said:

Will this affect those of us who have already applied and are waiting on a decision?

Probably not. The news hasn't come as a shock to lenders, it was always going to be the case.

blacksheepvegan

I’m not sure it should be a shock to anyone really. It’s pretty obvious spending will be down if no where is open. 

ACG

20% is probably the bare minimum if you have adverse at the minute, it depends how bad (or more importantly how recent) the adverse is. 

I think we have seen the worst of the adverse market for a while, things will probably get better over the next 2-3 months, but how much is to be seen. 

Brock_and_Roll

As a banker of many many years I can tell you that whenever there is a recession or some other crisis, there is a "flight to quality" - as Buffett says, you only know who is wearing shorts when the tide goes out!!

What this means is that the "gap" between the ability of top quality borrowers, corporate and private to borrow at a certain rate, significantly increases over that of riskier and/or highly indebted borrowers. In good times, the converse is true, "risky credits" are able to get rates very close to super strong credits.

What this means in practice is that adverse lenders themselves may find it harder and more expensive to borrow and they themselves will be more cautious in terms of who they lend to and at what rate. This can be compounded for mortgages if there is an expectation that prices will fall - a lenders comfort zone of 20% equity would easily get eaten up in a forced sale scenario if prices are falling and with all the costs and time involved in repossessions.

As the other end of the scale, I am seeing highly rated corporates  borrowing at rates almost identical to pre covid/recession. The rich will indeed get richer!