Lloyds Tightens Mtge Lending Rules To Address Specific Inflationary Pressures

[mewParadigm]

The portion of the loans they make that are sold on through the securitisation chain is presumably also much reduced. Lloyds might well be living with these mortgage on their balance sheet for years to come - perhaps they are just turning away the riskier stuff? It's all very well selling a teaser rate mortgage if you can offload it, but if it is going to stay on your books, then, from the banks point of view, you can have too much of a good thing. At these high-LTI, it won't take much of a move in mortgage rates before these households are on the ragged edge.

Sometimes the boring and simple explanation is correct!

Aside from slacker's point about the high earners borrowing 8x (I remember stories around MMR of a demographic of high earners who cycle to work, live on cornflakes, don't heat their houses and don't socialise), is a portfolio of 100 500k loans really riskier than 200 250k ones? It's probably marginally easier for a laid-off 50k earner to find a new 40k+ job than a 100k earner to bounce back into one at 80k+ but is that what this is really about?

[slacker]

is a portfolio of 100 500k loans really riskier than 200 250k ones?

You've got the marginal risk as these higher value 500K+ properties have often increased 2 - 3X in last decade

Then there is the presentational risk - Lloyds don't want stories in Daily Mail with sad faced picture of Johnny Banker who borrowed 8X his 2014 salary with QE fuelled bonus and now has 500K of negative equity - so wants to give property back and walk away with tax payers taking the hit again.

[19 year mortgage 8itch]

Aside from slacker's point about the high earners borrowing 8x (I remember stories around MMR of a demographic of high earners who cycle to work, live on cornflakes, don't heat their houses and don't socialise), is a portfolio of 100 500k loans really riskier than 200 250k ones? It's probably marginally easier for a laid-off 50k earner to find a new 40k+ job than a 100k earner to bounce back into one at 80k+ but is that what this is really about?

Is the penny pinching demographic you describe really going to be buying such poor value/expensive property?

Aside from Orbital, that is.

[MississippiJohnHurt]

Ray Boulger of mortgage brokers John Charcol has questioned the logic behind Lloyds decision to limit mortgages over £500,000 to a maximum of four times income.

Ray Boulger is shitting it isn't he! Great to watch

[cybernoid]

I'm basically trying to sell the idea that you could read this as the fact that Carney is in earnest when he says that the high levels of debt against housing stock is the principal threat to financial stability, and therefore quite aside from trying to solve it, is also necessary to make sure it doesn't get any worse whilst you figure out a way to make it better.

Its a bit bloody late to notice it

[nnails]

Skipton has hiked rates a lot recently. Does this have same effected as redrawing from market

[TheCountOfNowhere]

Interesting to see how the bbc are reporting today's events. The 8 percent year on year rise is still right up there on the home page. The Lloyd's news is tucked away in the business section and that article tells me its good news that other areas outside London .is also increasing. that statement is totally subjective and has no place on a trustworthy news site.

Id complain but it wouldn't do any good, i just home whomever writes Thu drivel looser big time when the London crash happens.

[Guest]

I'm flabbergasted that Lloyds were lending people half a million pounds to buy houses in the first place. And these 'restrictions' affect 8% of transactions - who the bloody hell is buying houses these days? To earn 120k you have to be in the richest 2% of the population. Even two of you on 60k each means you're both in the top 5%, and you'd better be sure you both stay in employment and stay together.

Though with the news that the average London property is now over 450k, maybe I shouldn't be so surprised.

Apparently this year's increase put 63k on the average London house. That's more than 98% of people in the country earned in that year. No-one has a hope of keeping up with this madness.

[Fully Detached]

Interesting to see how the bbc are reporting today's events. The 8 percent year on year rise is still right up there on the home page. The Lloyd's news is tucked away in the business section and that article tells me its good news that other areas outside London .is also increasing. that statement is totally subjective and has no place on a trustworthy news site.

Id complain but it wouldn't do any good, i just home whomever writes Thu drivel looser big time when the London crash happens.

I complained recently about the way they headline with whichever is the most positive of the mom or yoy figures for Halifax and Nationwide. I got a reply from the journo almost immediately with a very condescending BS response about yoy being the more statistically relevant figure. When I pointed out that he reported the mom figure the previous month, the guy replied saying that whilst he was prepared to read and respond to complaints, he wasn't willing to enter into specifics.

So the type of person you're dealing with is someone who reports sloppily, then thinks he can just ******** when called on it, and then refuses to actually get involved in the nitty-gritty.

Sounds like a property bull to me.

[dances with sheeple]

IMHO most people only know what things cost to within a few significant figures. If you are on 100K, do you keep tabs on every tenner, or just every £100 or £1000? You won't be buying yourself a Fiesta on a 120K salary - you would 'need' an S-class Merc on finance, or some monster 4x4. At the end of the month, I'd suspect you'd just end up with more expensive left-overs in your green-bin, and still bugger all cash left. But that 120K lets you take a much bigger chunk of debt on, and leave a much bigger hole in your bank's books when you default...

I think the really wealthy pay attention to every penny. Buffett supposedly queried a tax demand that was out by a few cents once, or is that just a made up story? I keep receipts for everything, and check it all each month, all the better to see ways of reducing my overall spend, and I bet many that post on here do the same. The Slumlord guy, Van Hoogsomthing was moaning about his son buying small jars of Marmite instead of the big ones, "because it is poor value", on some documentary I saw about him, etc. etc. People who need to borrow chunks of debt are not wealthy, they just want to be.

[thehowler]

It is worth recalling that it was Osborne who decided to end the so called 'mortgage famine' the banks gave us when they started requiring more substantial deposits. Hence you could argue that this is not something new, in terms of the conduct of the banks, with respect to the post-crisis reality, it just shows that the banks continue to act as if these are bubble prices which could reverse.

Aye to this, as I whimpered on page 1. The banks are more scattered isles and lone, hilltop fiefdoms than we give them credit. Lloyds are simply protecting themselves, I reckon, having seen their high-deposit buffer against a correction brushed aside by HTB executive recklessness. They clearly anticipate a 30% drop over the next few years.

The BOE and the executive are jousting. It was a disgrace that Humphrys let Cameron get away with that over-to-you line about the bank having all appropriate measures to control HPI, when Carney had been on the air the week before saying that it was out of the bank's hands. We credit them with too much intelligence and guile. The statements and events of this week reveal their wide-eyed haplessness.

[bubbleturbo]

I complained recently about the way they headline with whichever is the most positive of the mom or yoy figures for Halifax and Nationwide. I got a reply from the journo almost immediately with a very condescending BS response about yoy being the more statistically relevant figure. When I pointed out that he reported the mom figure the previous month, the guy replied saying that whilst he was prepared to read and respond to complaints, he wasn't willing to enter into specifics.

So the type of person you're dealing with is someone who reports sloppily, then thinks he can just ******** when called on it, and then refuses to actually get involved in the nitty-gritty.

Sounds like a property bull to me.

Heh, nice one.

[zugzwang]

Charlie Bean's got the fear. Or is he just covering his ass as retirement draws nigh?

Raising interest rates might be the only effective tool the Bank of England has to cool the housing market, its deputy governor has conceded.

Charlie Bean, who retires at the end of June, said that while it was sensible for the Bank to use macro-prudential tools to control rapid price rises and manage financial stability risks, the untested nature of such measures meant interest rate rises could end up being the "only game in town" to deal with an overheating market.

"Monetary policy may be a blunt tool for addressing financial stability risks, but it does have the virtue that it gets in all of the cracks," he said in a speech at the London School of Economics last night.

"So, there may well be times when monetary policy is the only game in town to guard against incipient financial stability risks."

Mr Bean said effective use of macro-prudential tools, such as limiting the amount of money people could borrow as a multiple of their income or forcing borrowers to raise bigger deposits, would allow the Bank to keep interest rates - which have been held at 0.5pc for five years - lower for longer. However, he said the "Panglossian view" that maintaining price stability should always be left to monetary policy while financial stability risks should be controlled by macro-prudential measures was too simplistic.

http://www.telegraph.co.uk/finance/economics/10845194/Raising-interest-rates-may-be-only-tool-to-control-housing-market-says-Bean.html

Edited May 20, 2014 by zugzwang

[19 year mortgage 8itch]

Charlie Bean's got the fear. Or is he just covering his ass as retirement draws nigh?

More bluff to appease whomever still trusts these guys.

You (the gov) do something or we'll be forced to do what you really don't want us to do.

[MississippiJohnHurt]

A little timeline from stuff that's stuck in my mind over the last year or so:

summer 13

- HTB2 announced: Almost immediately "rumours" emerge that Bank are unhappy with it.

- prob as a hedge/attempt to kick issue into the grass, the gov't give BoE mandate a review it , but on a long timeline, 12+ months (?)

- But the political machine works well, lots of positive stories - remember the monthly stats at the start complete with anecdotes of happy HTBers? Remember Osborne saying some horseshit about "down the road in Eccles, decent people with hard working jobs in the mill can't buy a house" . Etc

- Where i live, asking prices back at peak levels

early 2014

- "rumours" that banks will be forced to stress test 30% price falls on property by BoE

- FCA MMR comes out. Small backlash led by VIs which quickly peters out.

- Where I live, asking prices are now up 20% on peak prices (London having experienced 20% population growth in that time, right?)

within the last month

- senior BoE official saying that housing market is the biggest risk to financial stability

- soon after, Osborne reiterates that the BoE have the powers to deal with it

- and then "rumours" that Osborne is not in fact a lover of HPI after all

- OECD survey puts UK property at 30% overvalued (30% eh? See early 2014!)

- Carney explicitly mentions measures against housing market at FPC, whilst hedging by saying that the underlying problem can't be solved by BoE, and anyway it can't target geographical regions.

- Lloyds makes a move, targeting a specific geographical region.

Pretty obvious to me that "they" all know a crash is inevitable and is positioning as 1) the person who warned about a crash and 2) the person who can not be blamed for actually causing a crash. What a surprise that the fall guys are being lined up as individual banks and the MMR. Acceleration of the rhetoric suggests that the feeling in the corridors is that it will fall over sooner rather than later. As usual the really important thing for these people is to ensure they position themselves properly. That is being done at the moment hence the various back and forths between gov't and BoE over the last few days.

I think Bonfire of the Greed is coming and perhaps sooner than we think ! Haven't been this optimistic since '09. Popcorn yet?

Edited May 20, 2014 by FallingKnife

[dances with sheeple]

A little timeline from stuff that's stuck in my mind over the last year or so:

summer 13

- HTB2 announced: Almost immediately "rumours" emerge that Bank are unhappy with it.

- prob as a hedge/attempt to kick issue into the grass, the gov't give BoE mandate a review it , but on a long timeline, 12+ months (?)

- But the political machine works well, lots of positive stories - remember the monthly stats at the start complete with anecdotes of happy HTBers? Remember Osborne saying some horseshit about "down the road in Eccles, decent people with hard working jobs in the mill can't buy a house" . Etc

- Where i live, asking prices back at peak levels

early 2014

- "rumours" that banks will be forced to stress test 30% price falls on property by BoE

- FCA MMR comes out. Small backlash led by VIs which quickly peters out.

- Where I live, asking prices are now up 20% on peak prices (London having experienced 20% population growth in that time, right?)

within the last month

- senior BoE official saying that housing market is the biggest risk to financial stability

- soon after, Osborne reiterates that the BoE have the powers to deal with it

- and then "rumours" that Osborne is not in fact a lover of HPI after all

- OECD survey puts UK property at 30% overvalued (30% eh? See early 2014!)

- Carney explicitly mentions measures against housing market at FPC, whilst hedging by saying that the underlying problem can't be solved by BoE, and anyway it can't target geographical regions.

- Lloyds makes a move, targeting a specific geographical region.

Pretty obvious to me that "they" all know a crash is inevitable and is positioning as 1) the person who warned about a crash and 2) the person who can not be blamed for actually causing a crash. What a surprise that the fall guys are being lined up as individual banks and the MMR. Acceleration of the rhetoric suggests that the feeling in the corridors is that it will fall over sooner rather than later. As usual the really important thing for these people is to ensure they position themselves properly. That is being done at the moment hence the various back and forths between gov't and BoE over the last few days.

I think Bonfire of the Greed is coming and perhaps sooner than we think ! Haven't been this optimistic since '09. Popcorn yet?

Edited May 20, 2014 by dances with sheeple

[little fish]

“But in London, house prices are almost now 30% above the 2007 peak. This is largely driven by issues of supply which are particularly acute in London and this is having an impact on income multiples which are failing to keep pace with asset growth.”

Income multiples are failing to keep pace with asset growth - I'm confused

http://www.lloydsbankinggroup.com/globalassets/documents/media/press-releases/lloyds-banking-group/2014/20140520-lbg-housing-policy-update---final.pdf

[Venger]

Who is the majority share holders in llyods ?

There is so much noise from government.

Something is happening.

They wont be able to apply any gentle brakes , the london bubble is bursting and as i've said before it will take down the market all round the country.

Yet credit growth is feeble. Teaser mortgage for those putting down a lot of money. Get them crashed so the banks can lend on them.

And banks are cleaning up their balance sheets, selling into the frenzy.

We know you can't take your bearings of the market from the mass-media or EA Dave. Just like you don't hear much of Gordon Brown these days, even if Conservatives in power, he likely will be replaced with things turn, and all his EA nonsense forgotten, with "victims" who had no choice but to pay stupid high prices, having no one to look to but themselves.

UK house price boom boosts subprime ABS sales

Financial Times ‎- 1 day ago

Surging UK house prices have encouraged banks to offload sub-prime mortgages into 'sliced and diced' asset-backed securities, sending deal ...

Edited May 21, 2014 by Venger

[Ah-so]

This topic will be discussed on the Radio 4 business news in 5 minutes, if you are up bright an early.

[interestrateripoff]

4x salary!!!! Won't someone think of the EA!

[Ah-so]

A comment in the FT suggested that this might be in preparation for forthcoming bank stress tests, or perhaps risks that the regulators might increase capital requirements for riskier loans. Being unable to afford higher capital requirements, Lloyds has cut lending in this space.

[winkie]

A comment in the FT suggested that this might be in preparation for forthcoming bank stress tests, or perhaps risks that the regulators might increase capital requirements for riskier loans. Being unable to afford higher capital requirements, Lloyds has cut lending in this space.

.....so what will the next move be for the banks, unable to make money on volume due to tighter capital requirements.... We can't afford more bailins or outs.....so the only answer is to increase lending costs to make the business viable?

Edited May 21, 2014 by winkie

[gf3]

Higher tax coming in for the rich is the only thing that makes sense to me.

Lets say they taxed everything over £100,000 at 90% you wouldn't wont to lend someone on £200,000 5x salary.

[TheCountOfNowhere]

.....so what will the next move be for the banks, unable to make money on volume due to tighter capital requirements.... We can't afford more bailins or outs.....so the only answer is to increase lending costs to make the business viable?

Crash the prices...take the desposits...lend more on cheaper houses and higher interest rates.

There is no other way.

It should have happened in 2010.

[silver surfer]

A comment in the FT suggested that this might be in preparation for forthcoming bank stress tests, or perhaps risks that the regulators might increase capital requirements for riskier loans. Being unable to afford higher capital requirements, Lloyds has cut lending in this space.

I've been thinking along similar lines, but I've come to a slightly different conclusion.

The FPC meet in June. The banks are concerned that they'll be mandated to hold larger reserves for mortgage lending, which would be expensive to administer and would directly depress mortgage profitability. So Lloyds try to pre-empt this by introducing a solution of their own, the x4 cap. This solution has the huge advantage that it has most relevance on the London market, whilst also being cheap to administer.

So what will happen now?

Firstly I'd guess other banks will follow Lloyds. Secondly I'd guess that the FPC will accept and build on the Lloyds initiative next month, but of course they'll tinker with it to show that they have made their own invaluable and unique contribution. And thirdly interest rates will not be used to control house price inflation.

Edited May 21, 2014 by silver surfer