UK banks are in a bit of a Prisoners' Dilemma: acting individually, it is in every bank's interest to foreclose on every mortgage loan that looks in the slightest bit risky as soon as possible, because there is an advantage to being the first to bail out. However, this will merely speed up the house price crash. Acting as a cartel therefore, it is in the banks' collective interest to hang on as long as possible.*
Whether RBS NatWest will decide that this is a PR disaster and hastily back track remains to be seen...
The Addymans have been threatened with repossession, even though they've never missed a payment on their mortgage. Peter and Marian Addyman say NatWest gave them a week to repay the £226,000 loan or face losing their home, and the deadline has expired. The ultimatum - for which they say they have been given no explanation - comes despite the bank's nationalised parent company, Royal Bank of Scotland pledging not to carry out any repossessions for six months...
Mr Addyman, a 32-year-old pharmacist, and his wife, who works for a mental health unit, have three sons. They bought their newly-built five-bedroom home in St Leonards-on-Sea, East Sussex, for £250,000 in 2004. About two years ago they consolidated their debts by taking out a second mortgage for £100,000 with a finance company, but insist they were entirely open with NatWest about this.
... NatWest wrote to them in September to say that after 'reviewing' their arrangement it was withdrawing the mortgage. They had 30 days in which to secure a new loan or it would begin recovery action and inform credit rating agencies of the debt. The letter concluded: 'We assure you that we have only reached this decision after careful consideration. However our decision is final and we are not prepared to enter into any discussion in relation to it.'
The couple tried to make alternative arrangements, but say the fall in property prices has left them unable to find a new mortgage deal.
* All cartels face a similar problem, for example for oil-producers, there is a collective advantage to restricting supply to keep prices up, but an individual advantage to breaching a quota to exploit the artificially high prices.
Monday, 22 December 2008
Administrative cock-up or tip of iceberg?
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6 comments:
Funny how 'exceptional circumstances' quickly become unexceptional.
Wonder how they managed to run up non-housing debts equivalent to 40% of their housing debt. A little imprudent perhaps.
FC, so you think it's the first of many?
NVM, that is the miracle on which the Nulab economy was based!
Indeed, but it makes the hard luck story pretty unconvincing. Note also how they both appear to be public sector loafers. So essentially the process went like this:
1. Taxpayer robbed.
2. Loot given as "salary" to loafers.
3. Loafers leverage up to buy a house.
4. Loafers blow all their cash and then some.
5. Bank gets into trouble
6. Taxpayer robbed x2 for bank bailout
7. Bank calls in loan
I hope the next steps aren't
8. Taxpayer robbed x3
9. Loafers bailed out with loot
I'm with you NVM. Fuck 'em. I'll be unable to sleep tonight worrying about them. Not.
Hang on! The story says that they have a tracker mortgage at BoE base rate plus 0.04%! It would not be unreasonable to speculate that the fact that RBSNW were stupid enough to advance a clearly unprofitable mortgage has everything to do with this action.
If the facts are as reported my view is to fight this through the courts. It is surprising how understanding they can be especially if you can point out that it is RBSNW that have been stupid and not you. A good lawyer could make an awful lot out of that.
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