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The Spectre Of The Margin Call

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Apologies if this item from Observer CASH 18.1.09 has been posted before:


Further price falls may cause remortgagers more problemsAbbey's 'demands for cash payments' raise new fears for borrowers. Tony Levene reports

Tony Levene

The Observer, Sunday 18 January 2009

Article history

A further 15% house price fall - well within the orbit of many forecasts for this year - will see at least 1.5m homebuyers stuck with loans worth more than 90% of the value of their properties. And with few lenders prepared to offer mortgages over 90% loan to value (LTV), these home purchasers could find it impossible to remortgage when their deals run out.

According to Peter Tutton at Citizens Advice, who cited the figures in evidence to a Treasury select committee last week, homebuyers in this position could be forced on to their lender's less competitive standard variable rates.

But for thousands of customers of Abbey, one of Britain's biggest mortgage lenders, going over the 90% LTV line could involve more than having to switch to a higher interest rate when they have to remortgage.

Small-print clauses hidden in Abbey's mortgage documentation show these borrowers could face demands for cash payments to bring their loans down to the original proportion. A homebuyer on a 90% LTV mortgage, whose home was originally valued at £200,000, would have borrowed £180,000. If their property's value plummeted 25% to £150,000, a 90% LTV would only equate to £135,000. Under Abbey's clause, it could demand the homebuyer pay the £45,000 shortfall between £180,000 and £135,000.

Last week, the Treasury select committee heard how one Abbey borrower had been sent such a demand. Labour MP Nick Ainger revealed that Abbey had sent one of his Carmarthen constituents a demand to repay such a gap within three months.

"The lender asked for an extra contribution from this borrower even though the family had never missed a payment on the loan since taking it out in 2007," Ainger said. Some Carmarthen properties have been hard hit, with estate agents reporting the price of flats falling over 50% since 2007.

Ainger wrote to Abbey on behalf of his constituent, causing the bank to back down. "Abbey says it has no intention of invoking this clause in its terms and conditions. But the threat still hangs over this family," he said.

Abbey's clause only applies to flexible mortgages, which allow borrowing or repaying freely within limits - it has 60,000 customers on these deals.

Michael Coogan, the director general of the Council of Mortgage Lenders (CML), told the committee it was a "commercial decision on Abbey's part to write the letter". But he admitted that the Financial Services Authority had "reminded" the CML last week about "unfair terms". The FSA recently persuaded Halifax to back down from imposing a "collar" (a minimum interest rate) on tracker loans. This was written in the small print but not made clear at the point of sale.

Similar clauses

Observer Cash asked other leading lenders if there were similar clauses hidden in mortgage documentation.

"We do not have these terms and do not revalue properties for existing customers, although we must look again when someone remortgages," said Barclays (including Woolwich). Similar answers were given by Cheltenham & Gloucester (part of Lloyds TSB), Nationwide, NatWest and Halifax.

Abbey says: "We have not invoked this clause and have no intention to do so. What we would say though, is that in a falling house-price environment, it is prudent for people on flexible deals who find themselves at over 90% LTV to look at whether they can afford to make any overpayments."

It continued: "This letter was sent to a small number of people and the clause should not have been mentioned. We cannot remove it from the terms and conditions. Our mortgage advisers are aware of this clause."

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It could cause political outrage that the banks have taken billions from taxpayers and then turn up and demand even more money from the individual taxpayer.

If the bankers look at their history books wasn't it margin calls that made the 30's depression what it was?

However no one ever considers history so it will probably happen at some point.

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You can tell Battlestar Galactica is back.

I reckon Gordon Brown is a Cylon. a fracking skinjob.

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He's certainly not of this world.

Do Cylon's suffer from delusion though? If not it's a bit harsh on the Cylon's.

I dont know. they have no need of banks though, so thats one thing in their favour. Clearly, Gordon is working towards this goal....Im starting to like the man... :o

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I dont know. they have no need of banks though, so thats one thing in their favour. Clearly, Gordon is working towards this goal....Im starting to like the man... :o

In a bizarre way he may even manage to get rid of BoE money and we'll end up creating our own Injin style.

I don't even think Ponzi Brown knows what he's doing, it's just unfortunate he appears to always chose the wrong option.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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