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Second-charge Lenders Are First To Blink?

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Apologies for any previous references to this article....

Independent- Loans fuel a rise in repossessions 16.11.2005

A year ago, it was relatively unusual for a second charge lender to seek a repossession order, according to Pick. Now, some lenders appear worried that the weak housing market will make it harder for them to recover their money from borrowers in trouble. They may well be acting now, because if house prices fall further, recovering debts could become much harder.
"Second-charge lenders have increased their repossessions," agrees Boulger. "Firms offering consolidation loans to people with adverse credit records are much hotter on going for repossession orders when things go wrong."

Carol Vorderman may come to regret being the trusted face of the debt-consolidation industry.

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Apologies for any previous references to this article....

Independent- Loans fuel a rise in repossessions 16.11.2005

Start of the credit crunch?

Lower interest rates and tighter rules governing lending have cut the number of people falling behind with their mortgages

:lol::P You have to love the childish naivety of the Indy sometimes, much the same way that they blame Blair for not "reversing climate change", they may believe he is still all powerful but that stops short of omnipotence.

Some home owners, however, have come to rely on rising house prices to bail them out of debt. Remortgaging to pay off expensive loans, such as credit card borrowing or overdrafts, can make sense if done sensibly. But it is not an exercise that can be repeated time and again. If house prices stall or fall, borrowers can be very vulnerable.

"People have been using the increasing equity in their properties to remortgage on a regular basis," says Pick. "That option is not available any more."

Just goes to show that all this spin about a stagnant, "flat" or "stable market" is not enough, static prices aren't enough, once the upward momentum has gone people can't bail themselves out like before, we've seen this directly on wanna-Beeny property developments now just factor in all those loans.

Don't worry about Carol, she can Sudoku her way out of any fallout.

Edited by BuyingBear

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Guest Charlie The Tramp

Surely the primary charge lender has first bite of the cake and if they have no problems with their repayments what then happens. I can only see the second lender seeking a bankruptcy order hoping the debtor will be forced to sell to repay all chargees.

People have been using the increasing equity in their properties to remortgage on a regular basis," says Pick. "That option is not available any more."

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Charlie,

Something I've always wondered about. If I had loaned out moeny with anything backing it as colateral I certaily wouldn't want somebody else's debt tied to it, I realy can;t see why the first charge could just accept that a anotehr loan could/would be used in this way. It would almost definitely lead to the loss of a customer and quite possibly the loss of colateral as an asset would undergo a distressed sale.

Maybe we are not quite at the point that for the first charge that things are getting problematic enough.

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Guest Charlie The Tramp

Charlie,

Something I've always wondered about. If I had loaned out money with anything backing it as colateral I certainly wouldn't want somebody else's debt tied to it, I realy can;t see why the first charge could just accept that a another loan could/would be used in this way. It would almost definitely lead to the loss of a customer and quite possibly the loss of colateral as an asset would undergo a distressed sale.

Maybe we are not quite at the point that for the first charge that things are getting problematic enough.

Interesting you should post this, slater14 and I done a little investigation on PSLs.( Property Secured Loans, as MEW IMO is an incorrect term )

On checking charges on a register that section normally contains an entry from the lender whereas they would state they are under obligation to advance further charges.

I believe these charges from a second high risk lender are the results of the first lender ( maybe a responsible lender ) refusing further advances due to the borrower`s current financial position.

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Serpico

That makes sense then - first charge will only agree if they get their money back first (still lose a customer though and mortgage on their books). Of course this will only work whilst there is enough equity, once there isn;t the second charge isn't worth a fart in a thunderstorm - until supposedly the market comes back again.

The risk the first charge lender still runs though is that at some point in time the mortgagee llooking at his combined debt (which is now all attached to their house) says "can't be bothered with this any more, I'm going to lose my house anyway" and defaults on the lot - this is most likely to happen right at the bottom of the market when others are doing the same - max risk to first charge lender again. Still don't see why the first charge lenders are not fighting the ability of other non-secured lenders being able to just slap their debt against the colateral for the original loan. unless of course it is a great big merrygoround and they are have an agreement that they can all do it to each other's business and it will all pan out for the greater good.

Edited by OnlyMe

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AIUI the maximum risk is to second/third charge lenders as the first charge gets first bite of the cherry. If there's enough to pay him, he gets paid while the second charge lender gets anything left. If there's not even enough to pay him, he gets the lot and still gets first run on the legal front to try and recoup the rest.

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Anybody with a charge on the property can force sale. If it is owner occupied then the County Court has jurisdiction to suspend possession as long as the borrower can afford to pay the current installments and any arrears. If sold the first charge is paid off first and so on. It was not uncommon in the past for organisations with a second charge to take possession action and for the organisation with the first charge to pay off the debt and add it to their debt - especially in a situation where sale of the property will not redeem sufficient to repay the first charge let alone the second charge. They can do this to protect their interest and will often form part of the mortgage agreement.

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Anybody with a charge on the property can force sale. If it is owner occupied then the County Court has jurisdiction to suspend possession as long as the borrower can afford to pay the current installments and any arrears. If sold the first charge is paid off first and so on. It was not uncommon in the past for organisations with a second charge to take possession action and for the organisation with the first charge to pay off the debt and add it to their debt - especially in a situation where sale of the property will not redeem sufficient to repay the first charge let alone the second charge. They can do this to protect their interest and will often form part of the mortgage agreement.

Yes the misconception is that the 1st charge somehow gets preferential treatment, they don`t they sit equal to other charges. BTW it is not uncommon to see 3 or 4 charges these days guys :o

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So let's get this straight.

As an institutional investor I can go and buy a chunk of expensive chunk of AAA rated mortgage backed securities (you know the stuff with high mortgage/value ratios) on some goddam awful premium of piss-all percent and then watch as that AAA-paper is turned to junk by a string of loan originations from a bunch of couldn't-care-less credit card / loan arrangers who then go and slap a charge on my equity in the situation?

:blink:

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No - the first charge always gets paid off first.

If a lender with a second charge obtains a possession order then the primary lender normally has the opportunity of stepping in first and dealing with the sale.

When the first charge debt is satisfied then the remainder of the sale proceeds can go towards settling any other charged debts.

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Whats going to be scarry this time round is when older families who have remortgaged their house to fund a lifestyle they can't afford thinking somehow that money will magically come up when property prices rise - when of course they only get that money back by downsizing their house (which is unlikely).

Homeless families is going to be a pretty horrible site, but an inevitable one. My guess is tax money from those who havn't been so reckless will be used to help pick up the pieces.

Edited by padders

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  • 301 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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