Wednesday, July 8, 2009

Return of sub-prime mortgages

Nationwide offers 125% mortgages

Mortgages allowing people to borrow up to 125% of a property's value are making a surprise comeback after Nationwide launched a deal aimed at homeowners trapped in negative equity who are keen to move house.

Posted by smasheroonie @ 07:53 PM (1498 views)
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11 thoughts on “Return of sub-prime mortgages

  • Narrowescape says:

    “Someone taking out the three-year fixed-rate, for example, would pay 6.73% up to 95%, and then 7.23% on the remainder of the loan, up to a maximum of 125%.”

    I think it’s fair to say that this is a mortgage for the truly desperate, who at the same time can afford to pay extortionate interest rates. Gotta be a lot of those around!

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  • phdinbubbles says:

    “Nationwide offers 125% mortgages”
    “Michael Jackson to be buried without his brain”
    Great stuff from the grauniad

    “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?

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  • phdinbubbles says:

    and another thing…

    isn’t 257,500/250,000=103%

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  • phdinbubbles says:

    and another thing…

    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?

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  • little professor says:

    They don’t actually have to stump up the £12,500 cash – Nationwide will lend them the extra money. I.E.. in the example above, Nationwide’s lending to you would increase from £200,000 (on an £180,000 house) to £257,000 (on a £250,000 house). They are increasing your debt by £57,000

    The old 125% mortgages would give you the extra 25% in cash to spend on your new 4×4, holiday or bespoke kitchen. Under this deal all you are doing increasing the the money you owe on your mortgage (by £57,000), you don’t get any cash back.

    As you point out, this is a good deal for Nationwide as they are reducing the LTV and therefore the risk to themselves if you were to default and the house had to be repo’d.

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  • phdinbubbles says:

    My brain’s still not computing LP – this Old Peculier must have warped it.

    If they sell their house at £20,000 loss and Nationwide give them a new loan of £257,500 then they have £237,500 with which to buy a £250,000 house. Where does the missing £12,500 come from? – isn’t it equal to the 100%-95%=5% (of £250,000)? Or do I need to put a pointy hat on with a big D on it and sit in the corner? Or put another way – if Nationwide increase the principal by £57,500, how does that pay the £70,000 difference between the price of the two houses?

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  • Sub-prime lending and LTV mortgages of over 100% are two different things!

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  • “…but that doesn’t mean someone can automatically get that. We would go through our *normal* procedures, looking at income, outgoings and so on.”

    I think that should be:
    We would go through the *new* procedures, looking at income, outgoings and so on.

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  • little professor says:

    phd – having re-read the article, I have come to the conclusion that Ray Boulger is an idiot and has his figures wrong.

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  • This article fails to mention that Nationwide are using affordability calculations for their mortgages: The maximum loan is around 3.5 x income with outgoing taken into consideration.

    So if you have a good salary, a lot of equity in your home (this is a home movers mortgage), low outgoings and a good credit rating then this is not sub-prime lending – it’s highly stable

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  • It looks like another Northern Rock is on the way

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