Entries Tagged 'subprime' ↓
November 23rd, 2007 — subprime
One of the UK’s biggest sub prime mortgage lenders - Kensington Mortgages, has announced that it has had to temporarily withdraw its entire range of sub prime mortgage products.
This also involves withdrawing other types of non-conventional mortgages such as self-certification, and buy to let mortgages.
The company explained its decision saying:
“As a result of the recent further tightening in the global capital markets, Kensington is increasing its focus on lower risk products by temporarily withdrawing its Adverse range until market conditions improve.”
Basically, financial institutions are very cautious about taking on any sub-prime debt. The rate of default in the UK, is relatively low. But, in the current climate it is very difficult to get the necessary finance. Kensington Mortgages admit that there is little hope for the global credit crunch easing in the next few months.
Kensington Mortgages have reduced their profit forecasts for this year and next.
November 20th, 2007 — subprime
Although the UK sub prime mortgage market is relatively smaller than the US. The UK sub prime sector is also less likely to have major defaults because generally UK lending stuck to stricter criteria than in America. However, the main concern at the moment is that the US Sub prime woes are increasingly affecting the UK banking and mortgage industry through the shortage of capital and lending facilities.
Due to a shortage of capital on financial markets, there are concerns that other lenders such as Alliance & Leicester, and Bradford & Bingley may face the prospect of a similar shortgage of funds. Today, shares in these 2 companies dropped sharply as investors become nervous about their respective exposure to US sub prime markets Times article
The Bank’s issued statements saying they could see no reason for the fall in share prices, although investors are wanting them to explain how much exposure they have to the sub prime sector.
Northern Rock shareholders look to be the biggest losers from the Bank’s recent demise. None of the rescue packages are willing to value the company close to its existing value.
Buy To Let Mortgage provider, Paragon issued a statement saying they could face severe financial difficulties as a result of the credit crunch. Paragon are Britain’s 3rd biggest mortgage provider for the buy to let market. Its shares have fallen over 70% in the past 2 months. Reuters article
What can we learn from American Sub prime crisis
Dangers of Sub Prime Mortgages
October 9th, 2007 — news, subprime
An investigation by BBC panorama found that there are many instances of mortgage fraud in the UK. This fraud is centered on the sub-prime or adverse credit market.
Mortgage Fraud Includes
- Selling Mortgage products to people without making very clear the increase in costs after the introductory period is over.
- Encouraging council tenants to exaggerate their income, to be able to take part in the “right to buy scheme”
- Exaggerating income for the purpose of self certification mortgage
- Selling mortgage products that companies know they can sell on, before they start to default.
Although repossessions in the UK are relatively low, there are concerns that they may increase if the practise of mis selling mortgages is not curtailed.
Panorama provide a rather disturbing case of Emmanuel, who with a bad credit history, got a sub-prime mortgage for £300,000 with the Alliance and Leicester. He only earns between £25,000 to £30,000.
Effects of Mortgage Fraud on the Rest of the Economy
- It makes the housing market more volatile. For example, a small rise in interest rates can make mortgage repayments unaffordable for many who stretched themselves to be able to buy.
- Rising defaults may cause house price falls. If the number of defaults increase, it could be a trigger for falls in house prices.
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