Monday, February 4, 2008

Mortgage lenders call for tighter rules rather than do their own homework

Lenders warn about mortgage fraud

The CML pointed to the substantial incentives that can keep the headline sale price of a property unchanged, while reducing the actual cash needed by a buyer to go through with the deal - legal fees and stamp duty, cash-backs, offers of free holidays, the supply of white goods or even the arrangement of reduced mortgage payments.

Posted by ontheotherhand @ 02:43 PM (1269 views)
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18 thoughts on “Mortgage lenders call for tighter rules rather than do their own homework

  • There are literally hundreds of un-sold new builds in the Wrexham area, which are not selling for the sole reason that they are priced at over 10 times the average wage in the area. Rather than admit to falling prices, the developers are just adding to the list of ‘incentives’ available. One development (Pentre Bach, Wrexham) is still struggling to sell well over half the homes completed over a year ago. Their incentives started at 5% deposit paid, then £500 per month for the first 2 years and now part-exchange is being offered.

    Come on guys – prices are falling – these incentives are starting to look ridiculous – just accept the inevitable and drop the prices to what people can afford.

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  • Maybe the BBC has tipped them off about tonights programme exposing them as fraudulent cowboys … ?

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  • This rebate practices can only avoid problems if the price decline is temporary… which is not.
    the moment buyers want to offload these lemons in the second-hand market, these practices are exposed.
    lenders are not stupid, they know exposure to this junk increases their cost of capital.
    so the biggest lenders have cut on these mortgages

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  • Its not just developers. Some estate agents are shifting those ‘sticky’ properties by offering a ‘vendor incentive’. After buying at the asking price, they get a cashback on completion, which is supposed to pay the deposit. Hence people who can’t even manage to scrape a deposit together can get a foot on the ladder, so that they are well on their way to becoming property millionaires. Crikey, you could soon have a portfolio of 350 fully mortgaged houses by this method, but lets hope prices always go up and interest rates always come down.

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  • p.doff
    that is total subprime…. see another post on HPC
    things cannot go this way for too long, lenders will not permit that

    In London, I have heard of a number of foreign “investors” who have left the keys of the properties with the bank, packed and went home. Affected areas include Harrow, Kensal Rise, Finchley. I will not mention the country of origin of thes “investors”, but let us say the same we all receive emails announcing lottery wins and a big inheritance from a uncle we did not know about.
    Banks tried to market these properties for a couple of months but now they are being auctioned with Savills and Allsop. I may go just for the fun.

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  • @ Confused – just to pick up on your last point – I heard about this some months ago involving mortgage brokers/propertydevelopers and foreign investors – Developer offers discount to act as deposit on property and the broker then places the BTL mortgage with the lender – approximately 8-10 weeks after completion the “foreign investor” hands the keys in and does a runner. Property developer has the property off the books, the broker has his procuration fee (generally no clawback from lender) and the “investor” is out of the country leaving the lender holding the baby.

    Those that deny any prospect of a crash are unaware of how much fraud has actually artificially inflated the UK market.

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  • Agree confused @ 3&5. Some lenders are restricting LTV on new houses (not necessarily BTL), whilst others won’t lend on BTL flats at all. Not sure about sales of old houses and the private vendor deposit scam. This is often hidden from the valuer in order to get the valuation at the purported higher sale price (no valuers like downvaluing by a few %, and who can claim to be that accurate in todays market anyway). So I’m not sure how the lenders will cotton on. In some cases, the solicitor finds out and reports to the lender whereupon the valuer is asked whether his valuation still stands. It can be embarrassing to backtrack though.

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  • On my development of 2 1/2 bedroom three-storey town houses in Durham, the builder offers 10% cashback to BTL speculators (but not to real people) in each of the first two years, and a 3% mortgage deal over the same period. So town houses that are worth £300,000 according to the Land Registry are really worth £240,000. This in the North-East of England where median wages are under £20,000. During 2008 many of these 3% deals are due to run out, and the landlords will then find themselves paying almost twice as much in mortgage interest as the tenants are paying in rent. It will only be through the likely forced sales through auctions that the real value will get recorded.

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  • Yes I have seen 3% mortgages offered from the developers on properties which have not been completed yet in west london.
    Also I have noticed that the Prime London Market has started to drop prices, a fair bit, a v nice 1 1/2 bed flat in notting hill has just had the price slashed from 375k to 340k. Having been ridiculed for years for not buying in london by my estate agent friends I think things are changing. Suddenly lots nice flats are coming on the market in Fulham at realistic prices and not going within 5 minutes. And the funny thing is out of my friends i don’t think i know anyone with a good job and a deposit who hasn’t bought (apart from me!). There may be people who want to buy but i doubt a massive amount that can afford it.

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  • @monty

    good point. These teaser rates that the developers use are a recipe for disaster.

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  • “It will only be through the likely forced sales through auctions that the real value will get recorded”

    If a forced sale does go through and the real prices are then reflected at the Land registry it will be perceived as HPC for those that regularly check out nethouseprices/ourproperty sites – blissfully unaware that the prices were inflated at outset.

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  • Gents (&ladies)
    this could be HUGE
    When the price comparison sites (I mean surveys of course) that focus on the same properties being sold over time, this will correspond to a huge drop, especially if some (probably almost all) of these puppies go to auction. The incentives will feed through onto the actual figures eventually.

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  • In Leamington (Royal Yuppington Spa), there is a new development that has been ‘selling fast’ for well over a year. They now have advertised ‘100% of the property for 75% of the price’.

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  • Read this and let it be a lesson from history,

    http://www.cs-cyb-ee.reading.ac.uk/nmsruntime/saveasdialog.asp?lID=10400&sID=34517

    The whole paper is well worth reading, especially pages 19-25 as it details the 1930s property boom in the UK, it’s sharp building, lending and marketing practices that have been repeated under the NewLiebor government and the eventual negative equity experienced by many house purchasers. Yet again we are witnessing history repeating itself!

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  • Actually just watched the program.

    The highlight was a woman earning £40000 a year who had built up a £2.4 million portfolio of Buy to Let houses
    she had never seen, only to find they were derelict slums.

    The lowlight was a reported who had paid a £30000 deposit on her £300000 Barratt flat on the Thames only to find that none of the
    later buyers (pimps and fraudsters) had paid anything. Current valuation was £200000. They had the same development (slum of the future)
    on “The Truth About Property”.

    :- Duncan

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  • Just seen the Panorama program..So it seems that a large part of the BTL market is ‘Sub-Prime’ in America speak, since many are 100% mortgages mascarading as deposited investments.
    Makes 61% securitised Northern Rock look like a solid investment..but hang on they are the biggest BTL mortgage lender in the UK?
    Ooops! Where did that oil-tanker sized shipment of tax payers money go again? We are all mugs now.

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  • Re Wrexham/Mold:-

    Knowing the area well I would not touch any flats with a barge pole, as for the 3 bed redrow housies they will only be worth £149K MAX this time next year – Avoid or negotiate down and also be wary of the build quality.

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