Thursday, July 9, 2009

Hmmm

Nationwide offers 125% mortgage

Nationwide Building Society has introduced a mortgage allowing borrowers to take loans worth 125% of the value of the home they are buying. It will only be available to existing customers in negative equity who want to move house.

Posted by paranoia blue @ 06:54 AM (4305 views)
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42 thoughts on “Hmmm

  • Justanotherftb says:

    This is pure marketing spin – it will clearly be available only to a tiny minority of borrowers, and look at the interest rates, the base rate is nearly zero and they are charging nearly *8* percent fixed for 5 years. Bet they’ll be queuing in the streets for this one…NOT!

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  • Sad to see these back that is for sure…

    “It is a very niche offer. All we are doing is allowing them to carry across the negative equity they already have.”

    They say that like it’s a good thing, and the rate you pay for the privilege is a snip at 7.23% or 7.98%.

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  • It’s a pretty disgusting example, for the nationwide, to set.

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  • An instant 25% NE coupled with further falls in prices. I award this mortgage a red traffic light!

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  • Old_traveller says:

    Why would anbody currently paying less of the 7.5% offered here want to transfer its negative equity into a higher interest loan?

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  • britishblue says:

    I disagree.

    I dont think its disgusting. Because I brokered such a deal with The Royal Bank of Scotland back in 1996. I had negative equity on a property. (Bought for £68,000 and sold for £61,000) with an old girlfirend and wanted to buy a new property for 145k with my new wife. The RBS, allowed me to take across the negative equity. We had the right earnings, but I was trapped. I wasn’t stupid as most people on this site think of anyone with negative equity. I was a someone who had bought in my early twenties who had been told by everybody I had ever met that I couldnt lose on property.

    However, when we moved the market had bottomed and was severely below the trend line. To me the product is right, but at the moment the risk is to great because most people are expecting a further 10% decline. Many of us here think it should be significantly more than that given all the factors that come into play.

    I expect it is a bit of a PR stunt. Nationwide will crawl all over the valuation of the new properties, down value them and tell the borrowes to tap up the bank of Mum and Dad.

    They will also get the blessing of the media as a ‘Nice bank’

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  • Borrow more to get out of negative equity – and pay a premium for it because you are already a high risk ..

    Who in their right mind would borrow more to – whichevcer way you look at it doesn`t make sense unless you are convinced you have a big pay rise coming or the market is about to take a sudden up swing … I note BB’s comments above but for the majoity, their negative equity is in ten of thousands, not a couple of grand. This recession crash has yet to properly start – if Nationwide really want to help exisiting borrowers in NE, then cut the borrowers interest rates so that they can overpay and service the debt easier – that way the risk of default is reduced and the NE reduces also. Borrowing more to get out of a bad situation is just adding fuel to the fire unless you have a sure fire way of turning things around in the short term.

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  • matt_the_hat says:

    Quite smart – the bank already has these risks on its books so says it will help you out of the trap but the terms will change and the risk priced in.

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  • I agree with Britishblue.

    It is PR stunt but the terms and conditions of a very regulated deliberate NE deal such as this will mean there is no additional risk. All they are doing is offering to give people a loan. You can be sure that all those granted the cash will be financially secure – unlike a lot of others that knock on Nationwide doors

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  • japanese uncle says:

    I decided never to save my money in Nationwide, as I do not want to have anything to do with an institution run by someone suffering dementia praecox.

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  • george monsoon says:

    Here we go again…..

    I have a bank account with the nationwide.. Im moving my money before they go **ts up.

    I can’t see the logic here? these guys are bankers who must be well aware that interest rates are due to rise quite dramatically in the next few years along with unemployment, and they will be saddled with toxic debt.

    Those that are financialy secure now.. may not be in 2 years..!

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  • What next?

    Mortgage holidays for people who can’t pay?

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  • Should have read

    “It will only be available to existing customers in negative equity who want more negative equity”

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  • It is disgusting because it is indicative of banking practices that brought the country to it’s knees in the first place.

    Simply put; if you are insolvent, you are insolvent.

    (I just don’t know what is wrong with people these days; they seem to think they are entitled to absolutely everything without having to work & save for it…..)

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  • Marktopham says:

    This may help release “Pent up supply” a bit allowing prices to fall.

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  • folks: I agree with the idiotic concept of holding up the housing market at taxpayers’ expense. I also think the market is due another minus 20% on average.

    But:

    If you have landed in NE but ARE solvent (job, able to pay mortgage, salary multiplier OK etc) and want or have to move due to career or whatever – then provided YOU are solvent, I can see no fair reason to restrict mobility. It’s a TINY proportion that will have NE and be solvent – so it’s PR for Nationwide: not some kick-start to the housing market.

    I think we don’t help our site and cause if we’re seen as foaming haters of any collection of words containing the words “mortgage”, “negative equity”, “estate agent”, “building society”. We’ll lose contributors on this site and end up labelled “irrelevant freaks”.

    I am convinced there are those out there that look at HPC and think “divide and conquer” for their own vested interests.

    Don’t let them succeed.

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  • matt_the_hat says:

    What a bunch of thickies we have on here – the bank is not offering 125% mortgages – its to customers that are already in NE due to the fall in HPes. Therefore the bank is taking on no addittional risk but offering people a chance to move and pay a higher IR – sound like win-win from a bad position. I can’t believe people posted this rubbish after I already explained this…

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  • All this seems to do is move NE from house A to house B. I guess the rate will go up as a result. Plus a bit of publicity towards those in government wanting to see “movement” in the mortgage market.

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  • I agree with @4 British Blue and @12 Growler on their comments.
    If someone is in negative means that the value of their property has come down and I can only assume that the new property they are buying has also come down.
    So for example if original property cost was £100000 and the now worth £90000, and the value of the property they are going to purchase, assuming the original cost was say £180000 and now £170000 then the change over cost is the is still £80000. But the $64 question is are things going to get worse and the value of the new house could go down a lot further and they could end up in a bigger NE. This is very simple example. I am sure somebody could come with more sophisticated example of why not to move now unless you need to.
    Also anyone wanting to increase their mortgage at higher interest cost in this economic climate begs questioning. We on this site should be pragmatic and make comments that are constructive and informative to all our members. It very frustrating to see that the VI’s including the media forever try to hype the market up. But that is business.
    The problem with the current generation is that they want everything now. People should have watched the Richard Dimbleby lecture by Prince Charles on BBC1 last night.

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  • britishblue says:

    Growler @ 12. Couldn’t agree more!

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  • There is no escape from the negative equity for many.

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  • letthemfall says:

    This kind of mortgage, as britishblue reminds us, was available in the last crash to allow those in NE to move. This does make sense and is probably in most of our interests. It may increase the volume of sales and we perhaps will see prices fall back to trend levels more quickly.

    house: I watched the Dimbleby lecture last night. All good stuff, but I often wonder why they populate the audience with a mix of celebrities. To give faces for the camera to look at for variety?

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  • @matt_the_hat said…

    What a bunch of thickies we have on here

    Ah, one of your more intelligent responses. Do you surf this website whist you are waiting to show people around the crap*y houses that you are trying to sell?

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  • stillthinking says:

    I agree with titaniccaptain. Does it matter which house the negative equity is on? No, it doesn’t. There must be many people out there who need to move for work, so given the choice for the bank of not-working mortgage holder or working mortgage holder you can see they get more back by allowing a move.
    The reason why they have pitched the loan at 125% is because otherwise the debt would split into mortgage and unsecured components. An increase in transactions will hasten price discovery so this will hasten the crash.

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  • What a non-story.

    If you hold a mortgage, you can always attempt to renegotiate terms with your lender.

    Nationwide are just saying – we’re willing to look at our customers who are in NE and consider them for this specific refinancing ( probably cheaper than leaving the mortgage as is for many customers )
    – Of course they are. They do not want a firesale leading to a 60% fall in property values and a surge in the number of people who cannot pay – they would be left with a massive stock of illiquid assets and a lack of income stream.

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  • 125%. No real surprise. Considering the death throes of the capitalist model (as we know it) are being sustained by debt, it is no real surprise that the debt medicine, which will likely ultimately kill the capitalist model, is being used and will continue to be used. I don’t see this current downturn as the ulitimate armeggedon but do believe we will see more boom and bust cycles before its demise. I just don’t see how the current model can be sustained without ever increasing and significant levels of debt.
    I know I’ve deveated from the specifics of this blog but I don’t think the current posturing of a more tightly regulated financial system will happen as the model is too reliant on debt.

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  • little professor says:

    Great response in CItyWire today:

    Today’s mini-media frenzy over Nationwide’s 125% mortgage is very much in the latter category. In the general scheme of things the news isn’t at all important, but the easy headline it generates is simply too juicy for most media outlets to pass up. Those of us who saw the headlines this morning gasped in shock; those who read on, however, could not help but be disappointed.

    Let’s look at the facts. Yes, Nationwide has introduced a 125% deal, but it isn’t available to everybody, or even all Nationwide customers. And it certainly isn’t a deal for first-time buyers.

    Rather, it is available to a very small group of existing Nationwide borrowers who are in negative equity but need to move home, and can prove to the building society that they can afford the repayments.

    The 125% bit is made up as follows. Borrowers will be able to borrow 95% of the value of the new property, but also carry over up to 25% of the negative equity incurred on their previous home.

    However, they will still be asked to find a 5% deposit, and the total loan will not be allowed to exceed 125% of the value of the new property. Interest, meanwhile, will be charged at 6.73% on the first 95%, and 7.23% on the part related to the negative equity.

    A sheepish Nationwide insists the deal is only available to a ‘miniscule’ proportion of its borrowers, and that it would never ‘lend more than [borrowers] can repay’. The building society also stresses that it has been available since early June and that it is not actively promoting the offer.

    So there we have it then: an old, expensive, niche deal designed to help a small group of borrowers who have been caught by negative equity, but who need to move for personal reasons.

    Good for them and good on Nationwide, but hardly news to rock the housing market or the broader economy; during the last house price crash in the early 1990s, we saw a string of very similar deals.

    So why all the hype today, then?

    Well, the obvious answer is that number, the dreaded 125%. That, everyone now remembers, was the maximum LTV available to first-time buyers under Northern Rock’s ‘Together’ mortgage deal (which was only scrapped in February of last year).

    Along with buy to let and self-certification, the 125% mortgage offer has become the poster child for the worst excesses of the housing boom.

    And quite right too, as these deals only existed to make bankers richer by encouraging people to climb on the property bandwagon; without them, house prices would never have climbed as ludicrously high as they did.

    Any suggestion, then, that that sort of excess might be about to return will understandably terrify a large swathe of the population. It will also alarm anybody who thinks that the decade-long house price boom turned Britain into a nastier, greedier, less socially mobile place.

    It’s difficult to believe a new housing bubble can inflate before the last one has properly deflated, unless, of course, the government tries to engineer high inflation to erode the UK’s mountainous debt pile.

    Still, it’s dispiriting and disquieting to see how house prices still grab the headlines, even on news as thin as this. Only when that trend abates will we be able to truly say that the UK has kicked its house price addiction.

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  • letthemfall says:

    Good post LP. I really empathise with the last paragraph.

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  • still renting says:

    I think the response to this article, more than any other I’ve seen, shows clearly the distinction between two types of people who use this website.

    There are those who read beyond the headline, and comment and what is happening. And there are those who immediately criticise everything that any “VI” does, or witter about the perceived injustice of it all, without bothering to understand what the meaning of it all.

    George Monsoon, JU, hpwatcher, doomwatch, in my opinion you’ve particularly let yourselves down here.

    To sum up, this product will allow a few of Nationwide’s existing customers to move, without increasing their leverage, at the cost of a high interest rate. Nationwide take on no additional risk, and probably increase their returns due to the higher rate those customers will be paying. Which part of this is bad, dangerous or wrong?

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  • They want to copy Northern Rock

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  • To sum up, this product will allow a few of Nationwide’s existing customers to move, without increasing their leverage, at the cost of a high interest rate. Nationwide take on no additional risk, and probably increase their returns due to the higher rate those customers will be paying. Which part of this is bad, dangerous or wrong?

    It’s wrong because they are insolvent. Moreover it’s veiled attempt to maintain high house prices by encouraging larger mortgages. I mean, are any of those likely customers – looking to take out one of these mortgages – expected to be downsizing? I don’t think so. They will be looking to asking prices to bail them out.

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  • And so by the end of 2010 Nationwide will offer 200% mortgages to still help people in negative equity. They do not get it: house price recovery is not possible at these levels. Welcome to Japan.

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  • George Monsoon, JU, hpwatcher, doomwatch, in my opinion you’ve particularly let yourselves down here.

    and you are missing the point.

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  • still renting says:

    @hpwatcher

    Negative equity does not imply insolvency. Insolvency only occurs when you can no longer service your debts, not just when they exceed the value of your assets.

    Your assumption that it encourages larger mortgages seems to imply that people taking up this offer will necessarily be looking to trade up. In the current environment, and given the high cost of this deal, it seems more likely that it would mostly be used by those who need to move, perhaps due to a change in job or other circumstances.

    Because the new mortgage is 95% + neg. equity value, it is guaranteed to reduce the negative equity in nominal terms, and can only increase negative equity in percentage terms if for someone who is trading down to a cheaper property.

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  • still renting says:

    @ hpwatcher (again)

    Which point am I missing?

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  • phdinbubbles says:

    From the guardian article posted yesterday (and my reply after a couple of beers last night):

    “Ray Boulger at mortgage broker John Charcol described the case of a family who sell a house for £180,000 with a £200,000 mortgage on it to move to a property costing £250,000. Under this deal, Nationwide would lend them 95% of £250,000, £237,500, plus £20,000 of negative equity, which adds up to £257,500.”

    So the lucky couple stump up £12,500 cash and reduce Nationwides NE to £7,500. It’s not like the 125%ers of old – weren’t they lent to people with £12.50 in cash?

    and another thing…
    isn’t 257,500/250,000=103%
    isn’t 200,000/180,000=111%
    so the nationwide have actually decreased the LTV from 111% to 103%
    or am i missing the point here?

    @hpwatcher
    what is the point i’m missing?

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  • refusetobuy says:

    The point of an argument is to either change someone else’s opinion or allow them to alter yours.
    An implication of this is that if you win all your arguments you never learn anything.

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  • 20. hpwatcher – for that I would have to buy my first house, of course you know that if you read some of my comments from the last 5+ years – I don’t want to waste my time with people like you who are not intellectually compatible you clearly have been shown up now go back in your hole

    ”People like you”…..blah, blah, blah. The point you are missing is that this is an attempt to engender a greater degree of house price stimulus. But the question is, to what end?

    The Nationwide are hardly doing this to help people; they are a mutual and want to make money.

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  • wanderinman says:

    Nationwide’s own press release confirms some of the points made above.

    http://www.nationwide.co.uk/mediacentre/PressRelease_this.asp?ID=1427

    “As the borrower is required to put down a deposit of at least 5%, under this scheme, the LTV and the risk to Nationwide will reduce as a result of the transaction.

    Nationwide introduced this option on 10 June 2009 for existing customers only in the following particular circumstances:

    * they are in negative equity
    * they need to move home
    * they meet our strict lending criteria and
    * they have a good credit record.

    The Society does not anticipate, and has not seen, a great demand for this service.

    Borrowers in these unique circumstances are simply able to transfer part of their existing negative equity with them when they need to move home – as illustrated below the actual value of the negative equity and the LTV will reduce in all circumstances.

    Current property value £200,000
    Current mortgage -£220,000
    Negative equity amount =£20,000
    Current LTV 110%

    New property value £250,000
    5% deposit required -£12,500
    Negative equity carried forward +£20,000
    New mortgage =£257,500
    New LTV 103%
    New negative equity amount £7,500 “

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  • phdinbubbles says:

    Sorry for prattling on way past the sell by date, but…..it doesn’t seem to matter how much sense you talk sometimes – a large proportion of the population won’t listen because they’re too busy following the herd mentality. That herd mentality is now against those stupid bankers and their silly loans.

    @refusetobuy
    “The point of an argument is to either change someone else’s opinion or allow them to alter yours. ”
    Yes, but it gets a tad frustrating when it doesn’t matter how good and how well founded in evidence an argument is – when people just go and ignore it. I’m just pissed off really that the comment I made on the guardian’s site last night only got two votes compared with the (what i percceive to be a) silly comment above it got 9 votes. grrrrrrr. :

    This is nuts – this kind of practise is what inflated the property bubble in the first place and is actually one of the root causes of the Credit Crunch.
    If this is not a joke then I as a saver with Nationwide am moving my cash – this is maximum capital risk !!!!!! A joke surely ???
    Recommend? (9)

    The 125% mortgages of old were absolutely ludicrous – instant negative equity for people with poor financial management skills – and who were buying at the top of the market to boot.
    This however seems altogether more sensible depending on who the money’s being lent to. In the example given, the family has to pay £12,500 cash and the loan-to value is actually reduced from 111% (200000/180000) to 103% (257500/250000), so it’s not a 125% mortgage at all, unless I’m missing something here. Yes, the family are likely to be in more negative equity in the coming years now as house prices are almost certainly guaranteed to fall by another 20-30% of peak value before bottoming out – but if they can afford it, it doesn’t matter – e.g. if one of them is a GP – a high earner with a guaranteed job . No mention is made of the loan to income ratio in the above example.
    Recommend? (2)

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  • it gets a tad frustrating when it doesn’t matter how good and how well founded in evidence an argument is – when people just go and ignore it.

    I don’t care how frustrating you find it. To me this kind of deal feels wrong.

    This however seems altogether more sensible depending on who the money’s being lent to.

    I think ”depending” is the important word here…..

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  • http://www.marketoracle.co.uk/Article11912.html

    ”If the regulator, the FSA wants to preserve any remaining credibility it has after overseeing the collapse of the banking system whilst twiddling its thumbs, then it needs to send a clear message to the Nationwide that no matter how small the market the 125% mortgage is targeted towards, it is totally unacceptable and the product needs to be withdrawn with immediate effect.”

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