Ft: Uk Lenders Toughen Checks On Borrowers

[BTLlivingthedream]

---------------------------

http://www.ft.com/cms/s/0/f163d86c-5be0-11...00779fd2ac.html

UK lenders toughen checks on borrowers

By Sharlene Goff

Published: September 5 2007 22:16 | Last updated: September 5 2007 22:16

Borrowers are facing tougher credit checks as lenders try to minimise the risk of defaults following August’s market turmoil.

Subprime mortgage lenders have been quick to raise interest rates in recent weeks and, while rates for mainstream borrowers have remained largely unchanged, many banks and building societies have tightened lending criteria.

That could mean limited access to credit for first-time buyers, homeowners seeking to remortgage and consumers hoping to take out credit cards and loans.

Jill Stevens, the director of consumer affairs at Experian, the credit ratings agency, said: “We are seeing a tightening up across the board on lending. Lenders realise there are lessons to be learnt from the US subprime mortgage market.”

Lenders are looking more closely at borrowers’ credit histories, any other outstanding debt and their level of disposable income, according to mortgage brokers and credit agencies.

Minor blemishes to a borrower’s credit rating – such as a missed payment on a mobile-phone account – are now being taken more seriously.

“Lenders are looking deeper into people’s credit histories,” said Neil Munroe, director of external affairs at Equifax, another credit agency. “They will be looking in more detail for early warning signs of how borrowers deal with credit.” Agencies believe that lenders are now more interested in how borrowers service their debt than simply whether they have kept up with payments in the past. Ms Stevens said lenders were looking more frequently at whether borrowers had paid back just the minimum monthly amount or the full balance on existing credit accounts.

Banks are likely to impose the toughest checks on mortgage lending, due to the significantly larger loan sizes involved. Borrowers taking out riskier mortgages – typically those with higher loan-to-values – are likely to come under the most scrutiny.

Mortgage brokers say lenders are unlikely formally to restrict how much people can borrow as a proportion of a property’s value or a multiple of their earnings. But they can make subtle changes to how they assess applicants’ credit scores without public fanfare.

Simon Tyler, of the broker Chase De Vere Mortgage Management, said another area in which banks were likely to take a tougher stance was self-certification mortgages. These allow borrowers to state their incomes without formal proof.

Mr Tyler said: “Lenders may well ask more probing questions about income levels, which could make it harder for people to get larger loans or remortgage.”

Banks are also becoming stricter when lending to those with little or no deposit. This week, the Leeds Building Society said it would lend 100 per cent of a property’s value only if the borrower had a guarantor, such as a parent, to back repayments.

So far, lenders have not generally passed on higher borrowing costs to mainstream borrowers. Some fixed rates have, in fact, fallen in the past month to reflect a more stable base-rate environment. But if the banks’ borrowing costs continue to rise, brokers believe that mainstream mortgage rates may not be far behind.

Copyright The Financial Times Limited 2007

[Jake Z]

Ha!

What is the use of having parents guarantee a mortgage, when they're probably securing it against their OWN HOME!!

This could lead to a nightmare scenario (for them) in a falling market. The kids default on their over-leveraged mortgage and the parents lose their home AS WELL!!!

[laurejon]

Do you mean to say that when the market crashes and there is an abundance of cheap houses on the market, all those people that didnt buy will be penalised as well and most will not pass the credit checks.

I could have told you that some time ago.

For those who have STR, forget getting back on for a bargain the book on mortgage lending will be closed to all.

[Gone baby gone]

Hmmm, rearrange the words to form a well known phrase:

"the horse" "closing" "has" "the gate" "after" "bolted"

[stuckmojo]

This is the key to the HPC scenario.

no more irresponsible lending, no more crap mortgages, no more HPI.

end of the story.

and for those who STRd, I'm sure that they have done so keeping quite a lot for a deposit, same as those who didn't buy at the top of the bubble and they kept saving.

They'll be the winners when it all unravels...

[sossij]

Hmmm, rearrange the words to form a well known phrase:

"the horse" "closing" "has" "the gate" "after" "bolted"

Ok....

the closing horse has bolted after the gate... am I right?

[Realistbear]

---------------------------

http://www.ft.com/cms/s/0/f163d86c-5be0-11...00779fd2ac.html

UK lenders toughen checks on borrowers

By Sharlene Goff

Published: September 5 2007 22:16 | Last updated: September 5 2007 22:16

Borrowers are facing tougher credit checks as lenders try to minimise the risk of defaults following August’s market turmoil.

Subprime mortgage lenders have been quick to raise interest rates in recent weeks and, while rates for mainstream borrowers have remained largely unchanged, many banks and building societies have tightened lending criteria.

That could mean limited access to credit for first-time buyers, homeowners seeking to remortgage and consumers hoping to take out credit cards and loans.

Jill Stevens, the director of consumer affairs at Experian, the credit ratings agency, said: “We are seeing a tightening up across the board on lending. Lenders realise there are lessons to be learnt from the US subprime mortgage market.”

Lenders are looking more closely at borrowers’ credit histories, any other outstanding debt and their level of disposable income, according to mortgage brokers and credit agencies.

Minor blemishes to a borrower’s credit rating – such as a missed payment on a mobile-phone account – are now being taken more seriously.

“Lenders are looking deeper into people’s credit histories,” said Neil Munroe, director of external affairs at Equifax, another credit agency. “They will be looking in more detail for early warning signs of how borrowers deal with credit.” Agencies believe that lenders are now more interested in how borrowers service their debt than simply whether they have kept up with payments in the past. Ms Stevens said lenders were looking more frequently at whether borrowers had paid back just the minimum monthly amount or the full balance on existing credit accounts.

Banks are likely to impose the toughest checks on mortgage lending, due to the significantly larger loan sizes involved. Borrowers taking out riskier mortgages – typically those with higher loan-to-values – are likely to come under the most scrutiny.

Mortgage brokers say lenders are unlikely formally to restrict how much people can borrow as a proportion of a property’s value or a multiple of their earnings. But they can make subtle changes to how they assess applicants’ credit scores without public fanfare.

Simon Tyler, of the broker Chase De Vere Mortgage Management, said another area in which banks were likely to take a tougher stance was self-certification mortgages. These allow borrowers to state their incomes without formal proof.

Mr Tyler said: “Lenders may well ask more probing questions about income levels, which could make it harder for people to get larger loans or remortgage.”

Banks are also becoming stricter when lending to those with little or no deposit. This week, the Leeds Building Society said it would lend 100 per cent of a property’s value only if the borrower had a guarantor, such as a parent, to back repayments.

So far, lenders have not generally passed on higher borrowing costs to mainstream borrowers. Some fixed rates have, in fact, fallen in the past month to reflect a more stable base-rate environment. But if the banks’ borrowing costs continue to rise, brokers believe that mainstream mortgage rates may not be far behind.

Copyright The Financial Times Limited 2007

If this is true you remove over 50% of buyers surely? With so many people maxxed out on credit cards and facing repossession and bankruptcy it is difficult to see how they will continue to bolster the housing market. HPI has relied on the sub-prime sector (including other forms of less than perfect forms of borrowing such as SI, IO, 10 X income etc.) to keep things moving otherwise subprime and other "innovative" financing would not have been invented.

[Gone baby gone]

Ok....

the closing horse has bolted after the gate... am I right?

Top marks! You win a position on the credit derivatives desk at Barclays Captial

[evictee]

Does anyone know how the 'toughness' of these credit checks could be expected vary with the size of the deposit? Is there any point at which someone with a mediocre or non-existent credit rating could expect to be waved through?

[redgenieuk]

Top marks! You win a position on the credit derivatives desk at Barclays Captial

[OzzMosiz]

About funking time!

[eurows]

and for those who STRd, I'm sure that they have done so keeping quite a lot for a deposit, same as those who didn't buy at the top of the bubble and they kept saving.

They'll be the winners when it all unravels...

OR

Those that have STR will need their larger deposits just to get them back on the ladder as lenders UP the deposit levels needed to buy a house.

I was a STR but I now believe that prices WONT decrease to any significant level. People will remortgage less. The market will slow. Those ftb and STR will need more capital to put into deposit and will pay a higher APR than those already with mortgages.

The econony is still very strong, unemployment is falling, there is not enough housing stock, imigration is rampant.

I dont see any way the STR will win UNLESS they have CASH to buy outright. Then they may have an advantage.

But how many of you have cash to buy outright. NOT MANY. The str savings, unless they have invested wisely have been eroded by HPI (AND STILL ARE).

In my area the sold signs are still going up. They are taking longer, but they are still selling. AND not too far from asking prices.

I am still angy with myself for believing that there will be any great decrease in house values and then STR. I still believe there are those on this site in denial, The same comments are being branded about on here that I remember contributing to in 2005. 'Next quarter will be negative etc'

Edited September 6, 2007 by eurows

[evictee]

Does anyone know how the 'toughness' of these credit checks could be expected vary with the size of the deposit? Is there any point at which someone with a mediocre or non-existent credit rating could expect to be waved through?

Anyone? There must be some point at which the size of your deposit renders your credit rating largely immaterial? 25%...? 50...? 75...?

[Warwick-Watcher]

Does anyone know how the 'toughness' of these credit checks could be expected vary with the size of the deposit? Is there any point at which someone with a mediocre or non-existent credit rating could expect to be waved through?

How about some reality and the banks doing a check on all existing mortgage clients? They should start with any property where the mortgage is Interest Only and/or the borrower is on a self-cert mortgage.

It strikes me there's a lot of heads in the sand here, pretending that all is well when really the ducks are swimming like crazy to stop the Titanic from sinking !

[Gone baby gone]

How about some reality and the banks doing a check on all existing mortgage clients? They should start with any property where the mortgage is Interest Only and/or the borrower is on a self-cert mortgage.

It strikes me there's a lot of heads in the sand here, pretending that all is well when really the ducks are swimming like crazy to stop the Titanic from sinking !

Surely many of the banks don't care about existing mortgages on their books? When the easy money was flowing they have packaged these up and sold on to some foolhardy pension or hedge fund - the risk is already elsewhere. The only reason they now care about credit-worthyness is (1) to avoid bad publicity/FSA intervention and (2) now the cat is out of the bag, everyone is shying away from CDOs so they might have to back some of these new mortgages themselves and will be left holding the risk if they go bad.

[canny man]

THis will help knock the mortgage broking business into the long grass. The main lenders will no longer happily subcontract credit checking and any remaining brokers will see thier commission plummet - you don't get paid for applications you turn down.