Monday, Feb 09, 2009
Dear oh dear.
Independant: Northern Rock's losses on repossessed homes soar
Losses incurred by Northern Rock on repossessed homes soared nearly four-fold during 2008 as the economy deteriorated, figures showed today.
The nationalised bank saw the steep increases in losses on mortgages that are held in its Granite securitisation vehicle, which represents around half of its total mortgage book.
Figures for December 2007 showed that Granite had lost £10.2m from repossessed homes since it was first set up in 2001, but by December last year, the figure had mushroomed to £45.9m - a 350 per cent increase.
The securitisation vehicle made losses of £8.7m from the properties during December alone, with an average £19,348 loss per property that was repossessed.
Posted by flintster1994 @ 11:56 AM (1050 views) Add Comment
18 Comments
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1. paul said...
But no-one could have predicted this when the government chose to get the taxpayer to underwrite Northern Crock's losses a year and a half ago, right?
I mean, they said at the time that taxpayers will only lose a significant amount if house prices drop precipitously.
2. str 2007 said...
Very funny paul
''with an average loss per property of £19348.00''
Given 125% mortgages and falls since peak of 20% and the fact that what is selling at auction is going for 40% less than peak at least - how on earth have they managed to smooth the figures to show an avergage loss of £20k per ropossessed property ?
3. shining wit said...
str2007.......
I think the losses are still relatively small because of :
a) Northern Crock is practising all the governments "softly, softly" approach to it's borrowers in arrears. This bank is never going to get better - it is a 'dead parrot'. The government already has a 'bad bank' - this is it.
b) You point you made the other day that "If you could afford the mortgage 2 years ago and could still afford it now, what's the problem" - People are still paying for their overvalued properties.
c) The denial stage of the property bubble bursting is still in full flow. The lettings market has exploded, people are trying not to sell. When they fail to let or the next "down" period in their letting extends them to breaking point, it will kill them financially and there will be many more going to the wall.
I expect to see a huge increase in repossessions by the end of the year as all those who are "hanging in there", finally throw in the towel.
The brown stuff, in some respects, is still travelling through the air whilst gaining much momentum, on it's way to the fan!
4. str 2007 said...
shining wit
My point was that the £20k loss per property is IMO a very low average for properties that HAVE been repossessed,
That's nothing to do with softly anything, the properties have been repossessed and you assume sold to realise the £20k loss.
Wait a minute, maybe that's the scam. £20k loss average based on those repossessed but perhaps alot that have been repossessed haven't been re-sold yet and have yet to have 'losses' realised against them.
IE if they've repossessed 100 houses but only re-sold 10. They are counting the 'original' purchase price of 90 and dividing the loss of say 40-50k on the 10 they have sold over the 100 that have been repossessed.
I think something is being hidden, particularly as they sold quite a few on 125% mortgages - these are £25k underwater (based on £125k flats) before you calculate any Haliwide falls of another 20% or 20k in this example.
Your point b - I'm not sure it was me that said that, however if someone could afford their payments 2 years ago (and their circumstances haven't changed) then they would be unlucky to have to be paying more than that now, as alot of fixes that were for 2 years will drop onto lenders variable which is likely to be down to 3-4% now ( maybe 20-30% less than fixes were 2 years ago).
5. Game Over said...
"Northern Rock have a sound mortgage book"
Now, who remembers that lie that was repeated over and over again by New Labour following the bailouts and Nationalisation.
The sad thing is that nobody in the media will be bothered to remind anyone of this nonsense, let alone hold anyone to account over what was lying.
6. mark wadsworth said...
Those figures seem suspiciously low, total loss £46 million? From a bank that handed out £120 BILLION of mortgages at the top of hte biggest house price bubble EVER, including 125%, self-certified and BTL mortgages??? Britain's most reckless lender that wrote up to a fifth of new mortgage in the years 2005 - 2007??
The government wouldn't have bothered nationalising them if there was only £46 million at stake, that's chump change.
I'd say that these statistics are all downright lies. If they 'fessed up to £1 billion losses to date, I might just have believed them.
7. jack c said...
Oh what a tangled web we weave,
When first we practise to deceive!
Granite, owns £49 billion of mortgages that were sold by Northern Rock and moved off-shore to the tax haven of Jersey. Granite, which was set up by Northern Rock to raise cheap money, sold bonds to investors and used the proceeds to issue new mortgages.
8. 51ck-6-51x said...
These figures are very low compared to the numbers being banded about, because (a) these are only the tip of the iceberg of repossession possibilities; and (b) it is not just mortgages the government has to think about...
Here is a pdf with the numbers for Granite at the end of 2008
Page two has a good breakdown of arrears. The total value of loans in arrears by three months or more (by value including over/under payments) is £1.09bn.
The reason for the treatment (bailout money) was the possibility of infection, not just the scratch. Hence the argument for the creation of bad/good banks.
9. shining wit said...
str2007...
I retrospect I think it was p.off that said about affording a mortgage in the past and still being able to know.
The figures in the article are purely % based. There is absolutley no data about actual repo's or sales.
If you divide their losses (in december) of £8.7 million by the average loss £19,348 - you get just under 450 properties ! Extrapolate that over 12 months - 5396 or so repo's.
"Northern Rock said less than 1% of repossession cases currently involved customers who were fewer than six months in arrears, and that on average it worked with people for a period of 15 months before a property was repossessed."
taken from :
http://www.guardian.co.uk/money/2008/dec/03/northern-rock-repossessions-mortgages
I wish I could find out how many mortgages they still hold (can anyone help with this). I do know that the best have been allowed to have been 'cherry picked' by other lenders. So the Northern Crack (!) repo's you are seeing here possibly started to get into arears in 2007 !!!!
I also think that NR has the majority of it's base in the North were property is cheaper - If the average of all the repo's were on properties that peaked at £80k (unlikely) then it's a large amount. But bear in mind that most mortgages must have had a reasonable percentage paid back so that the arrears were probable not 100% of the mortgages (I also suspect that they may be 'holding' onto properties that they gave 125% mortgages to - I also think I'm right in saying that their 'more than 100% mortgages' were made of a 90% mortgage and a 'personal loan' to make the figure up to 110-125% and they will no doubt not be including the personal loan into the equation - remember; lies, damn lies, statistics and northern rock (government) statistics!)
I do suspect there is more 'creative' accounting going on. Also the last crash was completely mis-reported by the media. This one will be much, much worse.
10. str 2007 said...
shining whit
Yes I can see the £19,348 figure in the pdf 51ck posted.
Still seems fairly low to me.
Particularly given the very low cost of money at present, I guess they will find a way of at least postponing these losses by getting the defaulting masses onto some sort of 3% interest only deal for their £100k houses.
Actually it will be cheaper and easier to do this for the tax payer than putting the repossessed families into council accommodation which will, I imagine, cost more than £300 per month.
11. shining wit said...
str2007 at 10.....
It may be cheaper to, at present, keep these people in their homes but it makes a mockery of the system. When the interest rates rise (and they have to unless the pyramid scheme that is UK property continues) this will become untenable.
Str - I suspect, as I said above that both the level of the mortgage repaid and the fact that not all of the debt will be counted, in the case of Northern Rocks dodgy above 100% mortgages deals. I think that creative accounting is still the order of the day. I also suspect that 'selective' selling of properties is being used. If the property hasn't sold, it surely can't be counted against the profit/loss balance. Otherwise every mortgage would have a massive 60-70-80-90-100% loss against the capital loaned.
The figure is low but it will get much worse.
Str2007. You keep repeating your views advocating interest only mortgages with regards to quite a range of subjects. Interest only mortgages are a relatively new product and as such are partly responsible for the mess we are in. They rely, solely, on HPI rates going up, way above inflation, for the prospect of ever paying the initial loan back. You seem to advocate their use, when in reality they are more of the 'sharp practice' that led us into this mess.
So if the government or bankers support large swathes of people through their present financial crisis, with interest only mortgages, the only way this cannot be a nightmare in the furture, would be if house prices increased at a rate way above inflation.
Interest only mortgages are, by and large, designed for those who have either very little money; want to buy a property they cannot afford or for those expecting to see vast increases in property value.
12. happy mondays said...
shining wit said...When the interest rates rise (and they have to unless the pyramid scheme that is UK property continues) this will become untenable.
why do they have to? just curious!
13. jack c said...
@happy mondays - "When the interest rates rise (and they have to unless the pyramid scheme that is UK property continues) this will become untenable. why do they have to? just curious!"
Have a look at interest rates in Iceland and at the same check out the downgrades on Russia see www.hurriyet.com.tr/english/finance/10963323.asp?scr=1
We put the Egyptians to shame when it comes to building pyramids
14. shining wit said...
Interest rates cannot, if you want a susteainable banking system, rise.
You want to be able to borrow money, you lend £10 you get £11 back you make a small profit to both administer the system and pay yourself.
Why have profit at all in any system - Our do you advocate a soviet style economy - No exchange rates, no credit.
Japan, with it's ridiculously low interest rates, has aided the flood of money to the western economies and this will happen again if we don't stop this stupid (and relatively untired) keynesian experiment with regards to low interest and printing bits of paper and pretending it can retain it's value.
Also the chinese is artificially supporting it's own currency (by not letting it's value rise) to try and keep it's economic system growing at 10%+ a year. It can only do this because it is a quasi fascist/communist state with no regard for the consequences with the outside world. Countries, like businesses, run by unelected committees, are corrupt by their very means of existance (evidence of this can be seen in their attitudes towards their own people and their lack of freedom of movement).
Free money and free credit will kill the world's economies faster than anything. Gruel anyone?
15. shining wit said...
ooops, first line above should be:
Interest rates cannot, if you want a sustainable banking system, not rise.
16. str 2007 said...
Shining wit
I agree that interest only mortgages have led to alot of these problems and should never be sold in my opinion. They should be held in reserve for times like these and have a limited period on them ie max 2-3 years available with a 25 year repayment mortgage.
The reason I have been referring to them recently is because they do exist and most of the times I've been referring to them in context to another option to renting.
The fact that they do exist and BTLers/general public do use them is perhaps not correctly, but how people are valuing property.
This is why it is important to keep an open mind about the situation.
I fully agree that house prices are far higher than they should be and that the price of a property should be based on the cost of a repayment mortgage.
The system is still currently wrong, but it is the system that's currently in place. This situation is IMO unlikley to change until after the election and then only if the next government actually wants to fix the situation.
17. happy mondays said...
@jack c said... Thanks for the info, me understand now!
18. shining wit said...
str2007 at 16 ....
Yes maybe paying interest only for a limited period could help some people, but in effect you are extending the mortgage period as none of the capital is being repaid (how long can that go on for?).
This, unfortunately, also has the added penelty of not allowing borroweres to pay extra amounts of their loaned capital at the very time when interest rates are low and can make this possible. This adds to the debt burden in the medium to long term and stiofles 'real' economic growth in the future.
The system for valueing property cannot change because it is based on the current values that can be achieved. It is the ridiculous over-supply of money and credit (given to anyone with a pulse) that has caused this catasrophe. The money/credit/debt system has increasinglyacted like a heroin trafficker over the last 30 years.
The surreal calamity in the financial sector is due to our reliance on a purely service based economy (thanks Maggie, Harold Wilson and all the other 'forward' thinkers for both destroying our industries or not supporting them in the proper way). Our dedication to selling cheap imported good is what will now bring us to our knees and polute the planet with the far easts/china's total disregard for their own environments.
I agree the system is more than unlikely to change as that is the nature of our political system. The Conservatives (next government - possibly hung parliament) are incapable of doing anything other than resorting to type.