Monday, 7 October 2013

Retraction Of The Day

Robert Peston on top form:

UPDATE 1045

OK. First of all I made a fat finger mistake: 0.9% of £130bn is just under £1.2bn NOT just under £12bn.

Why I didn't spot my howling error before my blog went live is utterly beyond me. But I didn't, so v sorry.

Second, I am told that the 0.9% on a 95% mortgage is a one-off up front fee, not a recurring annual fee. And on a 90% mortgage the fee will be around half that.

So actually the recurring revenues to be earned by the Treasury may be hundreds of millions of pounds, not billions. More importantly, perhaps, the recurring cost to the banks of the insurance will be rather less than I thought.

Which means that if, as they say, they are going to charge circa [sic] 5% interest for the help-to-buy mortgages they may be vulnerable to the allegation that they charging more than is necessary or fair.


Yup.

Going by his figures (assuming £100,000 purchase):

Interest charged on 90% mortgage with Help To Sell subsidy 5%.

Interest charged on 75% mortgage without Help To Sell subsidy 3.5%.

£90,000 x 5% = £4,500 per annum.

£75,000 x 3.5% = £2,625 per annum.

The marginal £15,000 earns the bank £1,875 per annum (for several years) for a one-off cost/fee/premium of £90,000 x 0.45% = £405 (aka "higher lending charge").

4 comments:

Graeme said...

what is the point?

Mark Wadsworth said...

G, what is the point of what? The point of this post?

adamcollyer said...

It's all just the return of the Mortgage Indemnity Guarantee isn't it? Except that this time the Government is acting as the insurer.

After all, the homebuyers will obviously pay the fee for the guarantee as it will be incorporated in the mortgage fee.

Mark Wadsworth said...

AC, yes exactly. Only this time the MIG fee gets paid twice - once by the taxpayer and once by the borrower.