Wednesday, Jun 09, 2010
Getting desperate
Daily Mail: Bovis guarantees buyers' mortgages to boost sales
Bovis Homes has agreed to guarantee mortgages taken out by its customers, highlighting just how difficult it is to persuade the banks to lend to homebuyers.
The housebuilder has teamed up with Barclays to offer 90% loan-to-value mortgages in a bid to kickstart demand for new homes.
But instead of Barclays taking on the financial risk, Bovis has agreed to ringfence some of the cash it makes from the sale to compensate Barclays if it has to repossess the home and suffers any loss on the loan.
Posted by little professor @ 10:05 PM (773 views) Add Comment
5 Comments
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1. paul said...
Bovis has agreed to ringfence some of the cash it makes from the sale to compensate Barclays if it has to repossess the home and suffers any loss on the loan
What so the tenant doesn't have to repay the difference if it plunges into nequity? Sounds fair to me.
Only that's not what will happen of course - the bank will claim it back from Bovis and then claim it back from the tenant. Good ol' fashioned state sponsored double-dipping. Which is called 'fraud' in some countries.
2. fallingbuzzard said...
Exactly, Barclays and Bovis safe but owner in the muck
3. stillthinking said...
The whole point of banks is to intermediate risk, ie the bank covers the non-payment of the borrower. If Bovis are accepting losses themselves why use banks at all? Why not just say here is the property, here is your monthly repayment agreement. Done.
4. mark wadsworth said...
Stillthinking, that's an excellent idea - why don't you put it to them?
In fact, Bovis could pull a fast one here - if the agreement with the purchaser were that Bovis takes 100% of the loss on the chin, then a purchaser would be quite happy to overpay for the house. If it otherwise would have sold for £150,000, then where's the harm in paying £200,000 or £250,000?
Bovis can then offer a very low nominal interest rate for the time being - let's say at £150,000 the rate would have been 5%, they just reduce it to 3.75% if "price" is £200,000 or 3% if the "price" is £250,000 - so the purchaser ends up no worse in cash flow terms, and hey presto - selling prices as registered at HM Land Registry shoot up.
Economy saved! House prices booming!
5. Loneranger said...
A house of cards people! The landowners are the root of the problem, building companies need to stay profitable (and in business) thus will do anything that supports their business model. They (building companies) need land to build and are still purchasing land at astronomical prices. Tax the landowners otherwise Mr Prime Minister or this will only end one way...........