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Northern Rock Fiasco Ends Era Cheap And Easy Credit

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Guest wrongmove

Northern Rock fiasco ends era cheap and easy credit

"The era of cheap credit and six times salary mortgages is now 'over' in the wake of the Northern Rock fiasco, financial experts warned last night.

Interest rates could even climb higher, analysts predicted, as the effects of the credit crunch spread through the economy.

The warning came despite hopes that the Bank of England would be forced to cut borrowing rates following the US Federal Reserve's decision to cut its rates for the first time in four years as a result of the sub-prime mortgage troubles.

Peter Spencer, chief advisor to the Ernst & Young Item club, the well-respected economics forecasting organisation, said the global credit crisis spelled the end for the era of cheap credit.

He pointed out that in an aggressive attempt to grab market share, Northern Rock was responsible for one in five of all new mortgages in the first half of this year. The bank's shares fell again yesterday, by 49p to 257p.

"The Northern Rock episode is going to act as a trigger for the whole market," Mr Spencer said.............

...........It is those that have yet to climb on to the housing ladder and other people "at the margins" who will suffer most from the end of cheap credit, Mr Spencer said. It was "going to be rough justice", he added.........."

:blink:

I am not convinced that easy credit is over, but I am sure that if it is, it is not FTBs that will suffer!!!

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Guest wrongmove
I agree, there is too much at stake, such as saving the bonuses of the Big Swinging D*cks <_<

I think credit will get slighly tougher post-NR, but only slightly.

Believe it or not, NR have a very low default rate. It wasn't their lending that got them into trouble, it was the way they funded that lending.

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...more likely to be the BTLers MEWers who suffer. :rolleyes:

Absolutely. If credit dries up, prices will fall! FTBs will rejoice (sort of - as long as they can get mortgage!)

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Absolutely. If credit dries up, prices will fall! FTBs will rejoice (sort of - as long as they can get mortgage!)

Hopefully those of us with lots of dosh in the bank will be ok ;)

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However, he pointed out that normal borrowers were still being offered a huge array of deals.

Only yesterday, Abbey offered a new 125 per cent mortgage and there are 10 other lenders in the market that have deals of 100 per cent or more, the financial research website MoneyFacts says.

From the same article

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I think credit will get slighly tougher post-NR, but only slightly.

Believe it or not, NR have a very low default rate. It wasn't their lending that got them into trouble, it was the way they funded that lending.

I've seen this claim elsewhere, but what is the actual evidence for it? And if it is true, it puzzles me that large numbers of banks are not queuing up to buy this excellent mortgage book (the share price is negligible compared to book value). Also, new books tend to have low default rates, because no one had a chance to default. I wonder if that is the reason. I linked to their 2006 account in the thread I just started (balance sheet basics). This says that 30% of the book is at the er, more exotic end of the spectrum.

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From the same article

Indeed. I'll bet they are charging slightly more than NR, but I don't think these deals are suddenly going to disappear.

Well, not if your credit rating is good.

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I think credit will get slighly tougher post-NR, but only slightly.

Believe it or not, NR have a very low default rate. It wasn't their lending that got them into trouble, it was the way they funded that lending.

A few people I suspect got very rich, very quickly funding that lending as well. As for their default rate its too early to say.

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I've seen this claim elsewhere, but what is the actual evidence for it? And if it is true, it puzzles me that large numbers of banks are not queuing up to buy this excellent mortgage book (the share price is negligible compared to book value). Also, new books tend to have low default rates, because no one had a chance to default. I wonder if that is the reason. I linked to their 2006 account in the thread I just started (balance sheet basics). This says that 30% of the book is at the er, more exotic end of the spectrum.

I think the reason buyers are reluctant is the same reason NR went down - lack of available credit for banks.

Also, their default rates may be low now, but they are very vulnerable to a downturn in the housing market or the wider economy, IMHO.

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I think credit will get slighly tougher post-NR, but only slightly.

Believe it or not, NR have a very low default rate. It wasn't their lending that got them into trouble, it was the way they funded that lending.

A crucial point, missed by many. The underlying collateral continues to perform. There will be losses, but some lucky bank will get to hoover up these assets at a discount.

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A crucial point, missed by many. The underlying collateral continues to perform. There will be losses, but some lucky bank will get to hoover up these assets at a discount.

Indeed, there is little evidence of a credit crunch at present just competitors hoovering up NR's market share.

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As for their default rate its too early to say.

Exactly, there are stories out of the US saying that bright sparks there are holding off the inevitable and paying their mortgages on credit cards. I dare say some over here have cottoned onto that bit of nifty financial wizardry.

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I think credit will get slighly tougher post-NR, but only slightly.

Believe it or not, NR have a very low default rate. It wasn't their lending that got them into trouble, it was the way they funded that lending.

This is the type of thinking on the part of the credit ratings agencies that got us where we are today.

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However, he pointed out that normal borrowers were still being offered a huge array of deals.

Only yesterday, Abbey offered a new 125 per cent mortgage and there are 10 other lenders in the market that have deals of 100 per cent or more, the financial research website MoneyFacts says.

What they don't say is that most of the lenders will tighten their criteria around affordability rather than reduce the headline rates.

Draw as many people in with 100% offers and then look at all the figures, credit cards, debts and play the "affordability" card creaming off the best prospects (straight mortgage or mortgage and debt consolidation) and turfing the rest back into the high street safe in the knowledge they are unlikely to admit to their friends they failed this test - so lender's reputation for generosity rests intact.

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