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London Cash Buyers Send Banks North To Riskier Loans

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http://www.bloomberg.com/news/2013-10-06/london-cash-buyers-send-banks-north-to-riskier-loans.html

The risky loans that helped cause the U.K.’s real-estate crash are making a comeback as cash buyers from abroad limit lending opportunities in London and banks instead venture into the weakest markets.

Five years after Royal Bank of Scotland Group Plc and Lloyds Banking Group Plc (LLOY), the U.K.’s biggest mortgage lender, were bailed out by the government, the number of mortgages with down payments of 15 percent or less rose almost 50 percent in August from a year earlier. In London, where prices are rising fastest, only 1 in 25 borrowers took out a low down payment loan. In the north of England, the country’s most-volatile housing market, it’s about one in five, according to property appraisal firm e.surv Ltd.

High loan-to-value lending is poised to grow as Prime Minister David Cameron’s government this week introduces mortgage guarantees designed to allow people to buy a home costing as much as 600,000 pounds ($963,000) with a down payment as low as 5 percent. That increases the risk of a borrowers’ home value falling below the amount they owe if prices fall, or that they could default if interest rates rise.

The U.K. banks are already sitting on mortgage lending that exposes them to great interest rate risk and default risk,” according to Ismail Erturk, a senior lecturer on banking at Manchester Business School. “Current government policy of Help-to-Buy, as well as quantitative easing by the Bank of England, make things worse because they both encourage banks to lend to an overvalued market.”

Where's this guy popped up from? Never seen Erturk name mentioned anywhere before.

Clearly the cash buyers don't fancy a commute into London.

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Frankly the banks [employees] do not care as they are getting large salaries and putting money away, they are also making huge gains on their London properties as that is where they are based.

Also if/when the banks go pop again they will blame it on the government / boe and get bailed-in/out again.

Head the banks win, tails you lose.

I really would not be surprised if we hear of a limited number of self-certs returning. Initially they will start at high interest rates from sub prime lenders, within 12 months others will be competing and they will be the norm again.

At least this time we know the script so can prepare for the fall out.

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odd how higher loan to Value lending is always "poised" to grow.

HTB doesnt help the salary to loan ratios at all......and the FCA are pledged to cut out silly lending....

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Where's this guy popped up from? Never seen Erturk name mentioned anywhere before.

ErTurk (senior lecturer on banking at Manchester Business School). "It's an overvalued market and we need lower house prices."

256turk1826747als.JPG

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I came across my first IO mortgage distressed sellers in Mumbles - where house prices double every 24 hours :rolleyes: - over the weekend.

I have been hearing rumours of people needing to sell in the area but have only seen one other couple drop their asking price considerably - last year, divorced couple whom the bank eventually got fed up with.

Basically, couple paid 250K in 2006. Tried to sell it last year for 280K. Now on for 250K. Very keen to sell quickly. Had done a considerable bit of work to the property. Actually one of the nicest houses I have viewe and was tempted.

But they are asking now what they paid for it 6 years back.

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