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8% Of Uk Mortgages Are Sub-prime


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Hidden away in the Moneymail section in yesterday's Daily Mail:

Charcol estimates 8pc of mortgages are now sub-prime - for those with poor credit history

They then go on to detail mortgages with a higher interest rate than standard for these borrowers. I don't know how that compares with the US, but 8% seems high to me.

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IMHO anything less than a repayment mortgage with a 5% deposit is 'sub prime'. Even in the 80s 'Interest only' meant you still had to pay for an in-built repayment vehicle as part of the terms.

These days a spade is not a spade - it is an exclusive self-contained earth manipulation utility feature.

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Charcol estimates 8pc of mortgages are now sub-prime - for those with poor credit history

What about the swathes in the prime basket which have gone 'off' and will continue to ripple into the sub prime basket as IRs tighten, credit becomes more controlled and equity evaporates in the heat of the furnace to extinguish the clamour for MEWs.

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I would be interested to see how much credit card debt is 'sub-prime'.

I would take this to be credit card money that is spent by people that have no savings at the very best. Surely that's comparable to a definition of 'sub-prime' mortgage.

I'll guess there's no way of knowing for sure but would it be over 8%?

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What about the swathes in the prime basket which have gone 'off' and will continue to ripple into the sub prime basket as IRs tighten, credit becomes more controlled and equity evaporates in the heat of the furnace to extinguish the clamour for MEWs.

I know we've debated this before but at what point should an interest only mortgage be considered sub prime?

If someone has IO because they can't afford to buy with repayment mortgage that suggests that they're not likely to be saving money elsewhere (ISA, endowment etc.), including a pension. Are they likely to receive additional income in future to allow them to convert to a Repayment mortgage? If not then they are surely sub-prime.

In the US the IO mortgage resets to repayment after 2-3 years; which is why they are now seeing a housing slowdown. All the people who are basically too poorly paid to buy a house were lent the money on IO and now can't repay.

Surely the same situation exists in the UK except that you can keep the mortgage on IO for ever (well 25 years seemingly). The banks and FSA seem to have no comprehension of this risk. Perhaps they do and are pretending it doesn't exist ?

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Very few if any UK mortgages are sub-prime in the same way they are in the US. Recent stats show that the average proportion of take home pay required to service a sub prime mortgage in the US was 61%. When they come to the end of their fixed term, discounted deal this rose to 96%.

Our sub-prime market is by no means in as much difficulty as the US, lenders here are reserved by comparison. The problems with lending in the UK is not the mortgage market, it is the morons who have 5 credit cards and believe that this is simply 20 grand of free money for them to spend on tracksuits and holdays to Ibiza!

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I know we've debated this before but at what point should an interest only mortgage be considered sub prime?

If someone has IO because they can't afford to buy with repayment mortgage that suggests that they're not likely to be saving money elsewhere (ISA, endowment etc.), including a pension. Are they likely to receive additional income in future to allow them to convert to a Repayment mortgage? If not then they are surely sub-prime.

In the US the IO mortgage resets to repayment after 2-3 years; which is why they are now seeing a housing slowdown. All the people who are basically too poorly paid to buy a house were lent the money on IO and now can't repay.

Surely the same situation exists in the UK except that you can keep the mortgage on IO for ever (well 25 years seemingly). The banks and FSA seem to have no comprehension of this risk. Perhaps they do and are pretending it doesn't exist ?

an IO mortgage isn't any more a risk to the bank (or 'subprime') than a repayment mortgage would be

the risk is to the person taking it out if they don't set up any kind of repayment vehicle

after 25 years if someone hasn't switched over to a repayment mortgage or had some type of repayment vehicle in place the bank can force them to sell it; I doubt the banks will have any trouble getting their money back in 25 years time, even if theres a very big crash in the next couple of years.

p.s. IIRC nearly 25% of US mortgages taken out were subprime in 2006.

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I know we've debated this before but at what point should an interest only mortgage be considered sub prime?

If someone has IO because they can't afford to buy with repayment mortgage that suggests that they're not likely to be saving money elsewhere (ISA, endowment etc.), including a pension. Are they likely to receive additional income in future to allow them to convert to a Repayment mortgage? If not then they are surely sub-prime.

In the US the IO mortgage resets to repayment after 2-3 years; which is why they are now seeing a housing slowdown. All the people who are basically too poorly paid to buy a house were lent the money on IO and now can't repay.

Surely the same situation exists in the UK except that you can keep the mortgage on IO for ever (well 25 years seemingly). The banks and FSA seem to have no comprehension of this risk. Perhaps they do and are pretending it doesn't exist ?

Agreed....technically they are borrowing not to repay but to speculate on the house value and thus the equity going up......mostly on the basis they cannot afford or have decided they will not budget for a repayment mortgage.

The lenders and / or intermediaries need the commission and so far credit control has been 'lax' in many quarters.

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Surely the same situation exists in the UK except that you can keep the mortgage on IO for ever (well 25 years seemingly). The banks and FSA seem to have no comprehension of this risk. Perhaps they do and are pretending it doesn't exist ?

1) No risk to the banks. The risk has long since been packaged off and sold as some exotic "product".

2) In 25 years there will be no oil and Mad Max 2 will be how we live.

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Very few if any UK mortgages are sub-prime in the same way they are in the US. Recent stats show that the average proportion of take home pay required to service a sub prime mortgage in the US was 61%. When they come to the end of their fixed term, discounted deal this rose to 96%.

Our sub-prime market is by no means in as much difficulty as the US, lenders here are reserved by comparison. The problems with lending in the UK is not the mortgage market, it is the morons who have 5 credit cards and believe that this is simply 20 grand of free money for them to spend on tracksuits and holdays to Ibiza!

Although we do not have such a steep incline much of the US rise from 61-96% after the discount period finished was due to the steep climb in interest rates over a relatively short period. For the householder to avoid such steep repayment increases the scenario in the past would have been to remortgage at the end of the 2-3 year discount period with a MEW included. This became obsolete for many due to the IR rises which converted a sub prime into impossible and with declining equity no MEW offers to assist cash flow.

With the rise in IR here and declining equity growth (in most areas) this country is on the same landing path and few routes to MEW and repay these credit card bills.

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