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Sharp rise in overdue mortgage payments

From todays FT

More than a fifth of UK homebuyers who have a chequered credit history have fallen behind on their mortgage payments and even those with top-quality ratings have seen a statistically significant rise in delinquencies in the first three months of this year.

New data from Standard & Poor’s provides the first glimpse into how mortgages are performing this year. It is based on the behaviour of homebuyers whose loans have been packed into mortgage-backed securities – which accounts for 80 per cent of the £43bn subprime mortgage market.

Of all loans to borrowers with poor or no credit history, total delinquencies – defined as arrears of more than 30 days – made up 21.73 per cent at the end of March while those seriously delinquent by 90 days or more, including some already in foreclosure, edged into double digits at 10.60 per cent.

The figures show that more than £7bn worth of loans are at risk of default unless lenders agree to modify the loan terms. S&P believes that the loans backing the securities it rates are a representative sample of the market as a whole. The rise in subprime arrears threatens further problems not only for the economy but also for those financial institutions that bought securities backed by the loans.

Potentially more worrying is the small but notable increase in delinquency rates among prime mortgage-holders.

In a report on the performance of securities in this vastly larger market, S&P calculated mortgage delinquency rates for the first quarter of 2008 were 2.41 per cent while payments 90 days or more overdue were 0.79 per cent. S&P said this represented a “sharp” rise from the previous quarter when the figures were 2.11 per cent 0.62 per cent respectively.

S&P stressed that the numbers remained very small and Sean Hannigan, a director and credit analyst at S&P said: “We have seen numbers like this two years ago.” However, he added: “The difference today is that borrowers are not being helped by rising house prices as they have been in recent years,” he said. “In previous years, homebuyers in difficulty could find another lender to refinance the mortgage. It could mean that now more homes wind up in repossession.”

The fact that a rise is occurring while employment is strong and interest rates low suggests that it may not only be macroeconomic factors making it hard for homeowners to pay their debts.

Roughly 80 per cent of all subprime mortgages have been securitised, as have about 20 per cent of all prime mortgages. Data from the Council of Mortgage Lenders is more comprehensive but will not be produced until the summer.

Because S&P provides credit ratings on the debt, it must closely watch the underlying loans where payments from homeowners provide the interest and principal on the bonds.


Copyright The Financial Times Limited 2008
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Comments

  • I think everything is increasing in prices - council tax, utilities, fuel, road tax, insurance, food, train tickets, taxi fares, bus fares, air travel tax.

    When you're hit in all directions (save breathing air, luckily that's still free for now) with the government fudging inflation measurements, you're bound to run out of money at the end of the month.

    Even though I only rent, but I do feel the affects of the rising costs.
  • thriftybabe
    thriftybabe Posts: 689 Forumite
    unfortunately I think this may rise as we are now starting to see people in Construction, Estate Agents and those third parties involved in housing being paid off or losing business. Very sad indeed for those who are affected by this through no fault of their own.
  • WTF?_2
    WTF?_2 Posts: 4,592 Forumite
    I think everything is increasing in prices - council tax, utilities, fuel, road tax, insurance, food, train tickets, taxi fares, bus fares, air travel tax.

    When you're hit in all directions (save breathing air, luckily that's still free for now) with the government fudging inflation measurements, you're bound to run out of money at the end of the month.

    Even though I only rent, but I do feel the affects of the rising costs.

    Yep - saw on the news this morning that fuel protests look to be taking off again. The police of course are on top of the protesters like a ton of bricks because this is just the very, very early beginnings of what is going to be a period of discontent amongst the public.

    Everything is rocketing in price except for the usual suspects (plasma tellies and cheap Chinese electronic tat) and people who were already on the limit or in some cases running a negative cashflow are now being absolutely forced to tighten their belts.

    No amount of fiddling with inflation figures is going to hide these facts from being apparent to the public. It's inevitable that mortgage repayments are going to start to suffer. The thing is, if they are suffering it means that other debt is being defaulted on as generally people will do anything to pay the mortgage, even defaulting on other debts first.
    --
    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.
  • Lotus-eater
    Lotus-eater Posts: 10,789 Forumite
    10,000 Posts Combo Breaker
    I think everything is increasing in prices - council tax, utilities, fuel, road tax, insurance, food, train tickets, taxi fares, bus fares, air travel tax.

    When you're hit in all directions (save breathing air, luckily that's still free for now) with the government fudging inflation measurements, you're bound to run out of money at the end of the month.

    Even though I only rent, but I do feel the affects of the rising costs.
    You're absolutely right, but I reckon the ones that live on credit anyway won't really have noticed yet. That might take a few more months. Its creeping up a few pence here and there, but altogether its hurting.
    Freedom is not worth having if it does not include the freedom to make mistakes.
  • stonethrower
    stonethrower Posts: 340 Forumite
    Could get worse if the chairman of HSBC gets his wish.

    http://business.timesonline.co.uk/tol/busi...icle4012122.ece
  • Could get worse if the chairman of HSBC gets his wish.

    http://business.timesonline.co.uk/tol/busi...icle4012122.ece

    Well I wouldn't mind if he did.
  • WTF?_2
    WTF?_2 Posts: 4,592 Forumite
    Could get worse if the chairman of HSBC gets his wish.

    http://business.timesonline.co.uk/tol/busi...icle4012122.ece

    Wow, common sense from a banker at last!

    There's going to be a nasty economic backlash as a result of the out-of-control credit boom of a the last 5-6 years irrespective of what we do. It's way too late to stop it happening now.

    Better we suffer the consequences and get the bust out of the way as quickly as possible in order that we can start the recovery in an environment where inflation is under control. The alternative is that we introduce the massive economic problem of heavy inflation and just drag out the recessionary pain over many years by trying to mitigate the effects of the inevitable credit contraction with money printing.
    --
    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.
  • WTF?_2
    WTF?_2 Posts: 4,592 Forumite
    You're absolutely right, but I reckon the ones that live on credit anyway won't really have noticed yet. That might take a few more months. Its creeping up a few pence here and there, but altogether its hurting.

    What will really hurt is when credit limits start getting pulled in. eg. You are 10k in debt on your card and as you pay it off, the spending limit is reduced accordingly.

    It'll probably take going right to the point where people can literally no longer obtain credit before they realise that they're broke. Such is the change in attitude to credit that people think that as long as they can obtain credit from somewhere, they are solvent and in reasonable shape. :wall:
    --
    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.
  • Pobby
    Pobby Posts: 5,438 Forumite
    I am just amazed that it has already got to this. Speaking to once ,very high earning , US mortgage broker I asked her how many lie-to-buy clients she had got mortgages for. In her opinion all of them massaged their incomes!

    Can someone tell me why the lending houses have been so careless to lend money to people who clearly are not going to be able to repay?
  • Lotus-eater
    Lotus-eater Posts: 10,789 Forumite
    10,000 Posts Combo Breaker
    Could get worse if the chairman of HSBC gets his wish.

    http://business.timesonline.co.uk/tol/busi...icle4012122.ece
    I hope so, don't hold your breath though :D
    Freedom is not worth having if it does not include the freedom to make mistakes.
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