Wednesday, Jul 08, 2009
Return of sub-prime mortgages
The Guardian: Nationwide offers 125% mortgages
Mortgages allowing people to borrow up to 125% of a property's value are making a surprise comeback after Nationwide launched a deal aimed at homeowners trapped in negative equity who are keen to move house.
Posted by smasheroonie @ 07:53 PM (1149 views) Add Comment
11 Comments
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1. Narrowescape said...
"Someone taking out the three-year fixed-rate, for example, would pay 6.73% up to 95%, and then 7.23% on the remainder of the loan, up to a maximum of 125%."
I think it's fair to say that this is a mortgage for the truly desperate, who at the same time can afford to pay extortionate interest rates. Gotta be a lot of those around!
2. phdinbubbles said...
"Nationwide offers 125% mortgages"
"Michael Jackson to be buried without his brain"
Great stuff from the grauniad
"Ray Boulger at mortgage broker John Charcol described the case of a family who sell a house for £180,000 with a £200,000 mortgage on it to move to a property costing £250,000. Under this deal, Nationwide would lend them 95% of £250,000, £237,500, plus £20,000 of negative equity, which adds up to £257,500."
So the lucky couple stump up £12,500 cash and reduce Nationwides NE to £7,500. It's not like the 125%ers of old - weren't they lent to people with £12.50 in cash?
3. phdinbubbles said...
and another thing...
isn't 257,500/250,000=103%
4. phdinbubbles said...
and another thing...
isn't 200,000/180,000=111%
so the nationwide have actually decreased the LTV from 111% to 103%
or am i missing the point here?
5. little professor said...
They don't actually have to stump up the £12,500 cash - Nationwide will lend them the extra money. I.E.. in the example above, Nationwide's lending to you would increase from £200,000 (on an £180,000 house) to £257,000 (on a £250,000 house). They are increasing your debt by £57,000
The old 125% mortgages would give you the extra 25% in cash to spend on your new 4x4, holiday or bespoke kitchen. Under this deal all you are doing increasing the the money you owe on your mortgage (by £57,000), you don't get any cash back.
As you point out, this is a good deal for Nationwide as they are reducing the LTV and therefore the risk to themselves if you were to default and the house had to be repo'd.
6. phdinbubbles said...
My brain's still not computing LP - this Old Peculier must have warped it.
If they sell their house at £20,000 loss and Nationwide give them a new loan of £257,500 then they have £237,500 with which to buy a £250,000 house. Where does the missing £12,500 come from? - isn't it equal to the 100%-95%=5% (of £250,000)? Or do I need to put a pointy hat on with a big D on it and sit in the corner? Or put another way - if Nationwide increase the principal by £57,500, how does that pay the £70,000 difference between the price of the two houses?
7. Jayk said...
Sub-prime lending and LTV mortgages of over 100% are two different things!
8. Dellboy said...
"...but that doesn't mean someone can automatically get that. We would go through our *normal* procedures, looking at income, outgoings and so on."
I think that should be:
We would go through the *new* procedures, looking at income, outgoings and so on.
9. little professor said...
phd - having re-read the article, I have come to the conclusion that Ray Boulger is an idiot and has his figures wrong.
10. Neil B said...
This article fails to mention that Nationwide are using affordability calculations for their mortgages: The maximum loan is around 3.5 x income with outgoing taken into consideration.
So if you have a good salary, a lot of equity in your home (this is a home movers mortgage), low outgoings and a good credit rating then this is not sub-prime lending - it's highly stable
11. rm96696 said...
It looks like another Northern Rock is on the way