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Woah! 1/5 of NR's customers on 100% or greater LTV
WTF?_2
Posts: 4,592 Forumite
Holy moley, apparently 20% of their mortgage base is on this fiscally loony NR 'Together' deal.
http://www.moneyweek.com/file/44587/why-lower-interest-rates-wont-help-homeowners.html
So what about all those poor people who took out the ‘Together’ mortgage, which allowed enabled them to borrow up to 125% of a property’s value? Unbelievably, customers on this deal account for almost a full fifth of Northern Rock’s loan book - £20.8bn of the £107 total.
Now, Let's examine what this means in practical terms for them, in the current market:
If they've borrowed 100% or more of the purchase price of their home they have clearly stretched themselves to the limit of repayment and they will have been in 'instant negative equity' from the day they bought. Very, very few will have any equity in their house even now before the price drops really start.
Once the 2-year fix runs out they need to remortgage or go onto the Northern Rock SVR which the new management have promised will 'not be competitive' (ie. extremely high)
No substantial growth in the market means they have no hope of getting a remortgage. No-one is doing anything close to 100% loans any more.
So now they have to go onto the SVR which could mean anything up to a near doubling of what they were paying before.
They can't sell the house because they are in negative equity so they have no choice but to keep trying to pay the massively higher monthly payments.
Meanwhile, inflation means their finances are being squeezed ever tighter. Food up by large amounts, petrol much more expensive, energy (oil, electricity, gas) rocketing in price too.
Oh yeah, and a worsening economy means the threat of redundancy or pay cuts looms large in the background.
Eventually the probability is that they will default. House gets repossessed, they are left homeless and likely with a debt into the tens of thousands of pounds range on top of all that has already happened to them.
And of course, we taxpayers are guaranteeing the loans so we all take any ultimate hits from written off debts, caused after they likely are driven into bankruptcy.
Absolutely bloody fantastic, eh :mad:
What a mess we are in for thanks to years of totally crazy house price inflation.
Any FTBs reading this; Don't get caught in the trap. Buying now means that even a 10% deposit of your own could be wiped out within a couple of years leaving you in a very similar boat. Except of course that you'll already have lost that cash deposit as well as facing manf of the same problems outlined above.
Do not listen to the lunatic 'everything is good in the housing market' faction here telling you to go ahead and get into the house market at this point or you are in for a world of financial hurt.
http://www.moneyweek.com/file/44587/why-lower-interest-rates-wont-help-homeowners.html
So what about all those poor people who took out the ‘Together’ mortgage, which allowed enabled them to borrow up to 125% of a property’s value? Unbelievably, customers on this deal account for almost a full fifth of Northern Rock’s loan book - £20.8bn of the £107 total.
Now, Let's examine what this means in practical terms for them, in the current market:
If they've borrowed 100% or more of the purchase price of their home they have clearly stretched themselves to the limit of repayment and they will have been in 'instant negative equity' from the day they bought. Very, very few will have any equity in their house even now before the price drops really start.
Once the 2-year fix runs out they need to remortgage or go onto the Northern Rock SVR which the new management have promised will 'not be competitive' (ie. extremely high)
No substantial growth in the market means they have no hope of getting a remortgage. No-one is doing anything close to 100% loans any more.
So now they have to go onto the SVR which could mean anything up to a near doubling of what they were paying before.
They can't sell the house because they are in negative equity so they have no choice but to keep trying to pay the massively higher monthly payments.
Meanwhile, inflation means their finances are being squeezed ever tighter. Food up by large amounts, petrol much more expensive, energy (oil, electricity, gas) rocketing in price too.
Oh yeah, and a worsening economy means the threat of redundancy or pay cuts looms large in the background.
Eventually the probability is that they will default. House gets repossessed, they are left homeless and likely with a debt into the tens of thousands of pounds range on top of all that has already happened to them.
And of course, we taxpayers are guaranteeing the loans so we all take any ultimate hits from written off debts, caused after they likely are driven into bankruptcy.
Absolutely bloody fantastic, eh :mad:
What a mess we are in for thanks to years of totally crazy house price inflation.
Any FTBs reading this; Don't get caught in the trap. Buying now means that even a 10% deposit of your own could be wiped out within a couple of years leaving you in a very similar boat. Except of course that you'll already have lost that cash deposit as well as facing manf of the same problems outlined above.
Do not listen to the lunatic 'everything is good in the housing market' faction here telling you to go ahead and get into the house market at this point or you are in for a world of financial hurt.
--
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
Every pound less borrowed (to buy a house) is more than two pounds less to repay and more than three pounds less to earn, over the course of a typical mortgage.
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Comments
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I'm sure that not all of the people on the Together mortgage will have 100% LTV. There might be a fair number of them however.
What might happen is that other companies will probably cherry pick the better mortgages from among the NR ones. But given that credit is now less easily obtained, customers from other banks might find themselves "orphaned" as their fixed term deals expire and they look around for other loans.
I'm sure that the credit crunch still has a lot to reveal to us.0 -
Do you know the actual number of borrowers (I can't be bothered trying to find it and work it out
)? But with the stated intention of "loosing" 60% of their borrowers and the inability of 20% of them to move, that would indicate two things. One: NR is after keeping their best 20% customers and screwing as much out of the 20% on the "together" (or similar) deal. Two: Given the fiscal knife-edge that the "together" 20% were on when they took out their mortgages, then take 67%-80% (or guess your own figure) of that number and you can add that to the number of repossessions which will occur in the next 2 years. Or maybe NR will come out with a new unsecured product called "American style short sale". A house isn't a home without a cat.
Those are my principles. If you don't like them, I have others.
I have writer's block - I can't begin to tell you about it.
You told me again you preferred handsome men but for me you would make an exception.
It's a recession when your neighbour loses his job; it's a depression when you lose yours.0 -
Which would also make things "interesting", as that would mean NR keeping the less credit worthy and jacking up their interest rates. In two years NR gets sold as a specialist "sub-prime" lender as that is all it will have on its books. What a change from a mutual BS.What might happen is that other companies will probably cherry pick the better mortgages from among the NR ones.A house isn't a home without a cat.
Those are my principles. If you don't like them, I have others.
I have writer's block - I can't begin to tell you about it.
You told me again you preferred handsome men but for me you would make an exception.
It's a recession when your neighbour loses his job; it's a depression when you lose yours.0 -
No substantial growth in the market means they have no hope of getting a remortgage. No-one is doing anything close to 100% loans any more.
some of the house prices will have gone up in value. i'm sure a few of those borrowing 125% would have used that additional 25% to add value to their homes in some shape or form...
abbey and bank of ireland are still offering 100% loans....
but yes, its not a situation i'd personally like to be in0 -
BobProperty wrote: »Do you know the actual number of borrowers (I can't be bothered trying to find it and work it out)? But with the stated intention of "loosing" 60% of their borrowers and the inability of 20% of them to move, that would indicate two things. One: NR is after keeping their best 20% customers and screwing as much out of the 20% on the "together" (or similar) deal. Two: Given the fiscal knife-edge that the "together" 20% were on when they took out their mortgages, then take 67%-80% (or guess your own figure) of that number and you can add that to the number of repossessions which will occur in the next 2 years. Or maybe NR will come out with a new unsecured product called "American style short sale".
I don't think that NR is planning to keep their best customers. I think they're going to get rid of any customers they can get rid of.
I think that one of the big developments of the credit crunch over the next year is that people who already have houses and mortgages will find themselves unable to obtain credit as cheap as they did in the past, and this is going to have a big effect. It's not only going to affect new borrowers.0 -
I was working on the basis of the target of losing 60% which IIRC some exec came out with. Having re-read the other posts I now think best = most profitable is the most likely outcome, and the only way to achieve that with their existing customers is to jack up the rate. Anyone credit worthy enough will get a deal elsewhere, anyone not will be paying 9-10% and, as I said, NR will become a "sub-prime" lender.I don't think that NR is planning to keep their best customers. I think they're going to get rid of any customers they can get rid of.A house isn't a home without a cat.
Those are my principles. If you don't like them, I have others.
I have writer's block - I can't begin to tell you about it.
You told me again you preferred handsome men but for me you would make an exception.
It's a recession when your neighbour loses his job; it's a depression when you lose yours.0 -
some of the house prices will have gone up in value. i'm sure a few of those borrowing 125% would have used that additional 25% to add value to their homes in some shape or form...
abbey and bank of ireland are still offering 100% loans....
but yes, its not a situation i'd personally like to be in
I suspect most of them took the extra to pay off existing credit card debts.
Then probably took those freshly zero-balanced cards and dashed out to furnish the houses ....0 -
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"So what about all those poor people who took out the ‘Together’ mortgage,"
Poor people? This should read "Foolish" or "Suckers" surely?0
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