Saturday, September 12, 2009

Far East banks are piling into the UK mortgage market

TV 'Dragon' to offer FTB loans

Far East lender Hitachi Capital and Dragons' Den star James Caan are to launch a new loan service for first-time buyers who are struggling to obtain a mortgage. They will offer loans to cover the deposit, raising the original agreed LTV from 75pc of the value of the property to 95pc. It will also cover additional expenses such as legal fees, stamp duty costs and conveyancing, which can sometimes push the borrower over the affordability threshold. Loans of up to £100,000 will be offered exclusively through estate agents, and can be repaid over two to three years. The news is a further shot in the arm for UK borrowers and follows Bank of China's decision to enter the market earlier in the year.

Posted by drewster @ 11:28 AM (2278 views)
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16 thoughts on “Far East banks are piling into the UK mortgage market

  • The artcile actually says “Mr Turner added the company was also in discussions to expand the service next year to offer loans that “could” extend the original agreed LTV from 75 per cent of the value of the property to 95 per cent in some cases.”

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  • Drewster,

    Interesting find. I suspect that the phrase ‘piling in’ is perhaps a bit too strong. My guess is that Hitachi Capital will be looking for borrowers who can pass thorough financial vetting checks but who cannot get funding from our sick banking system. If Hitachi Capital get this right, they might be able to take market share of good customers from the UK banks.

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  • That’s how high % loans were originally constructed….james caan is betting his loan is safe because property prices are rising and he can get his money back if there is a default by repossession.

    However,prices are likely to go down and he will find he is second in line for any payout,which will be zero

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  • Let’s face it, none of the products ever featured on Dragon’s Den have ever become successes.

    Can’t see this one being any different.

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  • Loans of up to £100,000. So with IR set to go only one way, up to your neck in debt for life and living in a . . . ???

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  • but you do get 2 to 3 years to pay it off though lol!

    what planet these people on?

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  • Whilst I loathe the “enterprise culture” promoted by the oily Mr Caan and his ilk, I am sure he is at least far too smart to design a product that ranks him down the insolvency pecking order below another mortgagee, as Tafee suggests. Even if he was, I do not imagine Hitachi bank are starry eyed fools when it comes to lending money on property given the last decade or so in Japan.

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  • actually i now remember that in the 80’s you got the loan for 25% first in some instances and they then arranged the finances for the 75% elsewhere…perhaps this is what they want to do…..either way it seems risky to me

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  • mark wadsworth says:

    Just for fun, here’s my drawing of Phil’n’Krusty:

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  • landofconfusion says:

    2. quiet guy said…
    “If Hitachi Capital get this right, they might be able to take market share of good customers from the UK banks.”

    Which could in turn cause rates to drop as banks vie for what’s left of the ‘viable’ borrowers.

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  • No mention of the interest rates he’ll be charging. My guess is that a loan costing more than 10% is not going to be easy to sell, while on the other hand, a loan for less than that would seem to have insufficient risk pricing.

    I reckon his assumptions for the risk calculation are over optimistic – it wouldn’t be the first time that one of the TV Dragon’s has gone bust.

    Mortgage lenders now want to know the detail of a borrower’s debts and other commitments when they calculate the amount they are willing to lend, so a person relying on such a loan will be offered a smaller income multiple.

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  • And what can you get for £100k at the moment, even after the limited price falls we’ve seen so far in the beginning stages of the crash?

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  • Probably banks take a long time to set up. Maybe these organisations have come to the conclusion that prices will overshoot considerably with a backdrop of negative real interest rates (as the government/boe won’t be able to get ahead of inflation without bankrupting themselves and others). Easy money.

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  • jonb – it’s £100,000 for the top-up loan, i.e. the 20% needed to jump from 75% to 95%. That implies properties up to £500,000 – easily the majority of homes in the UK. If only a 10% top-up is needed, it covers homes up to £1m.

    quiet guy – Ok I admit I was being deliberately provocative with the title 😉 Hitachi Capital want to invest £1bn initially – if that all goes on 10% top-up loans on £160,000 average house price (so £16,000 per loan) that covers over 60,000 mortgages. That’s not a huge amount, but after the recent move by Bank of China it seems to be developing into a trend. The real question is why faraway banks think they can succeed here when local banks failed so badly?

    uncle tom – I agree that banks will want to know about this arrangement, but as long as they have first lien on the house they might not be too bothered. If Caan’s company only has unsecured debt, they’ll have to charge a whopping interest rate – I imagine in excess of 10%. Will that really appeal to people?

    The main point is that these top-up loans will be sold through Estate Agents. Imagine that – the EA takes you to see a lovely house, just outside your price range. Normally you’d put in a low offer and haggle down, but now the EA just smiles and offers you a loan instead. The EA collects commission on both the house and the loan. I can see this selling well, tragically. EAs are natural salespeople!

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  • @10 Mark you should be in therapy

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