Wednesday, May 06, 2009
Lenders are making more conservative valuations
Times: Existing borrowers seriously undervalued
[Scroll half-way down for the relevant sub-article.] Many existing homeowners are running into difficulties when they try to remortgage — mainly because of the murky world of valuations. Mortgage rates are now so dependent on the amount of equity that borrowers have in their homes that the valuation process has become increasingly important. With some lenders, the rates available to borrowers with 20 per cent equity are as much as 1.3 percentage points higher than those with a 25% deposit — a difference of £270 a month on a £250,000 loan. Given the large sums involved, there is an obvious incentive for banks to make conservative valuations. Evidence has emerged that some lenders are doing exactly that. In one case, Halifax knocked almost 40% off the value of a borrower’s home.
6 Comments
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1. Redcellar said...
So sanity returns at long last. That's the point of this article isn't it?
2. mark wadsworth said...
Excellent find, that's cheered me up no end.
"the rates available to borrowers with 20 per cent equity are as much as 1.3 percentage points higher than those with a 25% deposit"
If you do the maths, that equates to an marginal interest rate of about 25% on the additional borowing needed to get you from 70% lTV to 75% LTV. No wonder nobody's doing it!
3. dbc reed said...
The banks seem to be very shy of going back to silly mortgage lending.As they are being propped up by government money,the question is whether the government is complicit in this outbreak of "responsible lending" .From the way things are going ,it looks like some kind of deal was struck with the banks that they could take public money to bulk up their reserves and then do what they like with it .You don't get so much huffing and puffing about the banks from Gov figures now.Seems like they are resigned to the housing bubble deflating,as long as they can blame the banks for it.
4. crunchy said...
2. dbc reed
I think that what you suggest was the original bold plan, but losses sure do have a way of sobering you up when you realise that the effect can't be cured by the cause. More so for a "private sector" business.
True to form, Nu Labour with Old Ways. There comes a time when the trashman has to collect the waste!
5. Andy H said...
Interesting. Given that banks price risk, they seem to think the risk of them losing money increases significantly for anyone with less than 20% equity. The risk of them losing money is based on the risk that they can’t sell a house in the event of default in some time in the future. So the value of a distressed sale at the bottom will be 20% less than the current value (or about a 35% drop from the peak). This is real risk and real money so the PR people will have problems spinning the numbers.
I wonder if it is possible to do a graph of equity to loan rates for the major banks to see if there is a definite step in rates.
6. watching with amusement said...
Oh, how the Andrew Ellson's crocodile tears have cheered me up this morning.
First up, he's complaining about cheaper mortgage's in Ireland, and then says that the banks use a feeble excuse of having to price their mortgages competitively. Well, I would have thought that a financial adviser would've understood competition clearly i.e. if they might as well not bother selling mortgages in Ireland if they are charging twice the rate of their competitors. I can't imagine Mr Ellson complained about the market when it was driving property prices skyward.
And as for complaining about valuations being too low? Well, they're not. All Mr. Ellson does here, IMHO, is to further compound the evidence of his inability to deal with anything more complicated than a shovel.
And finally, the complaint about the lack of a traditional bank manager. Well, guess what, the world has moved on from the 1950s! Whilst I find a bank's attempts to sell me some new financial service every time I do so much as pay in a cheque incredibly annoying, I have found a firm, "No thank you, I'm not interested," does the trick. As for hankering back to a rose tinted view of life 50 years ago - Mr. Ellson should talk to his parents about getting a mortgage back in those days!