Monday, Jan 28, 2008
Self-cert mortgages: a warning from the last crash
MoneyWeek: Self-cert mortgages: a warning from the last crash
Self-certification and subprime mortgages are hardly new phenomena. In the early 90s, the easy availability of loans and extravagant valuations led to bankruptcy and huge losses for lending banks. And it will again.
Posted by mary @ 02:58 PM (733 views) Add Comment
9 Comments
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1. mark said...
self certs are not always bad, as some self employed people would never have a place to live without them
2. it_is_going_with_a_bang said...
The problem with self certs is that it basically has been used as a tool to lie about your life and income so as to get credit which you otherwise should not have.
The banks just used it as a way of lending money without responsibility. In most cases they know full well the information that is supplied is complete nonsense.
3. jack c said...
If you are self employed you need to submit an annual Tax return with the Revenue - so why can't the lenders work off the agreed IR figures - after all anything that deviates from the agreed IR return is mortgage fraud.
More to the point why do lenders offer self cert for employees? - every employee surely has a payslip and P60 and could show their salary credited to their bank account - plus the employer could verify earnings.
Self Cert has partly helped fuel the ridiculous rise in UK house prices in the last 10 years.
4. paul said...
Self-cert, interest only, 100%+ and (the majority of) BTL mortgages are all - basically - subprime.
The media won't call them that for fear of spreading widespread panic in the press and public, but the margin of what a person can repay over what they are likely to repay is pure-as-driven-snow subprime.
The UK has roughly four times the proportion of subprime as the US. But next time you see a debate on plummeting house prices, post some facts and figures in the comments about the percentage of the UK's subprime as compared to the US and read the venomous responses you get back.
5. paul said...
Come to think of it, the UK's subprime problem is The Next Uncomfortable Truth about housing in the UK. Six months ago, it was heresy to openly declare that the UK is vulnerable to a housing crash. Now it's a commonly shared fact.
As of right now, it's still heresy to even think that the UK might have a subprime problem.
6. talking rot said...
Subprime is an interesting concept and many sheeple have a subprime mortgage without even knowing it. A married friend of mine, with his wife, earn about £75K. They have a £340,000 mortgage and boast of "almost £100K" equity in their house (which is also described as their pension). I'd call that pretty much subprime.
Is there definition of what is a subprime mortgage - perhaps one based upon a high LTV?
7. Duncan said...
Something else that was prevalent just before the last crash and seems to have returned is shared equity.
Does anyone else remember the Panorama program on Negative Equity in which they went down Ormonds Close in Bradley Stoke
(Sadly Broke) Bristol. I rememebr it well as a friend lived in that road.
Most of the houses had been sold on an 80% 20% shared equity basis. Unfortunately they hadn't gone up in value
yet after three years all the shared equity buyers had to increase their mortgages by 20%. Whoops.
:- Duncan
p.s. Does anyone know if in a shared equity scheme the builder (or whoever else sets it up) will take a decrease in the value of their equity
if prices fall.
8. renting2 said...
@jack c.
Couldn't agree more about self cert! It's either mortgage fraud or tax evasion! The number of Jag driving 'sole traders' I come across who 'earn' under £5k p.a. beggars belief. Their accountants are earning their fees.
9. Space Monkey said...
I expect that an evaluation of 'sub-prime' must really consider if a loan can be repaid, considering the following :-
1. payments end in a reasonable time frame ( at least 1 year before retirement ? )
2. are affordable i.e. payments can be met after paying for ALL essentials ( food, heat, clothing, transport … )
3. there must be some cash remaining in the household budget to pay for maintenance and renewals etc
4. little or no reliance on other short term ( credit card or overdraft borrowing ) to make ends meet.
Oh dear, are we all sub prime ???