From The Times:
HBOS, which is part of Lloyds Banking Group, will consider offering a new mortgage to customers in negative equity whose existing deal, such as a fixed rate, is about to expire.
Normally such borrowers would see the rate they pay revert to the lender's standard variable rate (SVR) and would be unable to remortgage if the new loan were greater than the current value of the property as a result of the decline in house prices.
But Halifax and Bank of Scotland, which are both part of HBOS*, are offering the rates on 95% loans to some remortgage customers needing to borrow more than the property value – up to 120% of the value in some cases.
* Allow me to insert the missing words: "Halifax and Bank of Scotland, which are both part of HBOS, which itself is part of Lloyds Banking Group which is 65% owned by the taxpayer..."
Hmm. I'm not convinced that this is the best use of taxpayers' money, but hey...
H/t QG at HPC.
Wednesday, 15 April 2009
Another day, another reckless throw of the dice (25)
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13 comments:
Broon is trying to keep the merry-go-round turning until the election.
Pretty obvious really. He has told us himself that he will do "whatever is necessary", with the unspoken follow up "to save my skin" being well understood.
Captcha: "eu rant" - well don't even start me.
I suggest it's a cunning way of maximising the profitability of these loans. SVR is low - if the bank refinances on to a fixed rate now they can take charges / fees to profit *and* charge a higher rate. Also, it says "some" borrowers - it won't be the ones in arrears so the risk price of these loans won't be so high because they know the punters are likely to keep paying. Last, for the borrowers it means that if they're on a fixed rate then they'll avoid in part the inevitable rate rises over the next 12 months or more.
Seems to me the safest borrower strategy just now is to lock in for a long term fixed rate. If inflation returns big-time and rates go up to where they were at the beginning of the 1990s a lot of folk will be deep in the doodoo.
I know lots of serious commentators and economists suggest inflation won't do that and that depression will counter it, but given a choice between unproven theorising and experience of inflation following money supply excesses every time it's happened in my lifetime, I'll go with the experience :-)
Sounds like a sound decision to me, but then it wouldn't be the first time we'd disagreed about mortgages!
FT, sure, if I were advising somebody in that position, I'd tell them to lock in for as long as possible. But a good deal for the borrower is a correspondingly shit deal for the taxpayer.
Similarly, in my capacity as 'mate', I always urged people to buy their council houses at a discount, it's a one-way bet; while at the same time decrying this policy in my capacity as 'taxpayer'.
If "good deal for the borrower" meant a lower interest rate, I'd agree - it'd be a scandalous deal for the taxpayer; but given that the bank's stuck with the loan anyway (there's no new money being advanced) my point is that they're taking the opportunity to increase the margins on good-conduct loans and that, by extension, is a good taxpayer deal too.
(However miniscule the additional profit might be as a proportion of the cost of repaying the taxpayer).
FT, one man's loss is another man's gain, I suppose.
But don't forget that today's 120% mortgage is next year's 150% mortgage if prices go down another 20% (which seems highly likely). At that stage, the taxpayer is looking at serious losses (and it's not like the borrower with massive nequity is in a happy position either).
I'll go away in a minute, I promise :-)
It doesn't matter what % of the value the loan is, so long as it's being paid on schedule. It only matters if the loan is called in.
If house prices decline another 20% the loan is still the same amount. So the bank has the risk already. The additional risk is that a borrower might shove the keys through the letterbox and walk, but unlike the US that doesn't transfer the loss to the bank. More importantly, the bank appears to be targeting these new loan deals at people who are paying anyway - in other words, people who are committed to living in their house for whatever reason, and who are demonstrating a propensity to pay.
*And* they're improving their margin!
What's not to like, as a well-known blogger is wont to ask?
FT, sure, I agree that subject to all those caveats, it's a perfectly sensible thing for both sides. But this a gummint run bank, and a trickle will become a torrent...
That's what's not to like!
HBOS has been leaned on. Tossers.
Why not just the spread on the SVR - that's ease the paid just as well.
that's ease the paid just as well.Eh?
FT, my guess is "that'd ease the pain just as well", it was the first half of the sentence that stumped me.
MW - Old (very bad - drunk?) comment-
"HBOS has been leaned on. Tossers.
Why not just the reduce the spread on the SVR - that'll ease the pain just as well."
Mark 2 version as requested:-
In other words re-mortgaging someone on what was a 95% loan to a 120% loan into a new product at a lower rate than HBOS SVR is just a way to generate new fees for HBOS. If they want to help borrowers who are de facto already in negative equity all they have to do is reduce the SVR, that is the spread between HBOS SVR and the B of E base rate. Yes, this may be below market rates but so what? If the new fixed rate 120% mortgage product is at a cheaper rate then they can also offer that lower rate on SVR. I mean they are not exactly overpaying depositers are they?
Always but always beware of lenders or intermediaries offering to lower your payments or otherwise help you by remortgaging. In my (considerable) experience the only people such action 'helps' are the lender and the intermediaries.
Be aware that part of the reason for 0.5% BoE base rate is to give opportunity to banks to increase their spreads so that they can charge their customers more at a cash price that they can sort of afford. This transfer of cash from borrower to lender to rebuild the banks balance sheet is therefore less painful for the borrower.
I'm not sure I've understood you on this. Is it your view that HBoS has taken this action (offering fixed rate loans instead of SVR to selected borrowers) to reduce the borrowers' mortgage payments?
YOu see, that would be rather difficult. I've no idea what terms are on offer but there's a clear indication that the fixed rates start at 5.19% though that looks cheap by comparison with the market - such as it is - for high loan-to-value fixed rate loans of 5 years plus. By contrast BoS's SVR is 4.84%(for borrowers coming off old BoS mortgages) and Halifax's, 3.5%. I strongly suspect any rate for borrowers where LTV exceeds 95% will be somewhat higher than 5.19% but it'll be interesting to see.
I hadn't noted any indication that HBoS is doing this to lower people's repayments. Or was that just an aside?
Formertory@19;12
I hadn't checked the rates currently on offer. I was looking at the story which indicated the HBOS were remortgaging their existing borrowers now in negative equity with 120% loans.
Now there are two cases of re-mortgage - internal and external. If internal then they are taking borrowers on the SVR (their rate control product having ended) and putting them on another deal. Why are they doing this? There is no need, unless the borrower really craves a fixed rate. But the fees on fixed rate deals are currently quite high. I have just checked our database and the HBOS fees vary between 499 and 1499 or for high value loans a %age with a max (£10,000 in one case!).
If it is an extrenal deal i.e. a remortgage coming from another lender then the ability to do 120% may be a good thing if the other lender has a high SVR, but I doubt it. Anyway high SVR's are usually associated with sub-prime lenders and is it likey that HBOS will take on sub prime at an LTV of 120%?
Look, I just never trust 'remortgages' or 'new deals'. Fixed rates should be used as an insurance device if you've borrowed heavily and need to be sure of your payments for a future period of time. Mostly if you go to a 'good' lender and seek out a full term low spread tracker you'll never need to re-mortgage.
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