uk subprime / deja vu - economist

wow! isn't it amazing that just after the implosion in the us uk is speeding up in the subprime direction with creative financing, higher ltv, stated income tec.

us reloaded or groundhog day/deja vu all over again..........

die haben nerven. obwohl in den usa nun gerade der laden implodieren ist geht uk genau verstärkt in die gleiche richtung. man kann sich fast wie bill murray in täglich gr+ßt das murmeltier fühlen......




Rising house prices have hidden a multitude of sins

IT SHOULD have been a warning sign to Britain's mortgage lenders, but news of the meltdown in America's subprime market has prompted only self-congratulation. With straight faces, lenders, rating agencies and investors have counted the reasons why mortgage lending in Britain is as neat and orderly as the terraced Victorian houses it often finances.

One sign of confidence was the bond sale last week by Kensington Group, a British mortgage lender, to people with dubious credit records. While New Century, America's second-biggest such mortgage lender, was shuttering its offices as clients defaulted on their loans, in Britain investors queued to throw cash at Kensington. Bond buyers wanted twice as much as the £800m-worth ($1.5 billion) of mortgage-backed bonds on offer and blithely accepted a lower rate of interest than they had demanded on similar bonds sold by the firm last June.

update:

Shares of U.K. subprime lender Kensington tumble http://tinyurl.com/2k4c2s

At first glance, such enthusiasm for subprime lending in Britain (where it is tastefully called “non-conforming” or “adverse-credit” lending) looks justifiable. This is a profitable market that has grown from about 6% of all new mortgage lending in 2005 to as much as 10% last year (though estimates differ). Interest rates on such loans are usually at least 50% higher than those charged to lenders' best customers. Bond buyers in turn receive yields about 0.2 percentage higher than those on Treasury debt.

Despite these rewards, zeal for subprime lending ought, surely, to be tempered by prudence. It is not, because the boom in British house prices has helped drive repossessions to unusually low levels. Even feckless homeowners have made paper gains on their homes and are thus more inclined to pay off their mortgages than to walk away from them. When they have been unable to keep up with their payments, banks have often convinced them to sell their homes, thus avoiding seizure.

Kensington Group, for instance, says that although 9% of its loans were more than three months in arrears last year—slightly less than a year earlier—it had to write off only 0.7% of them.


Emboldened mainstream lenders, too, are extending mortgages on looser terms these days. Around 8% of new home loans are “self-certified”—ie, borrowers do not have to prove what their income is—compared with 6% of all existing mortgages.

Increasing even faster are interest-only mortgages, which make up almost a third of the total issued to first-time buyers. They are not automatically cause for concern, especially if borrowers have made other plans to repay the capital. But a recent study by the Financial Services Authority, Britain's financial regulator, makes for worrying reading. It suggests that these loans are gaining popularity because people entering the housing market are ever more financially stretched (see chart).

i´m not sure what to make of the chart from the economist. i have here another chart from the same source that looks much more realistic. especially when you see at all the advertising from banks like this one "Five-times-salary mortgage offer" http://tinyurl.com/2fshdp

weiß nicht genau was ich von den economist chart halten soll. habe hier einen von der gleichen quelle der mir realistischer erscheint. besonders wenn man sich die angebote der banken ansieht (s.link oben)

About a fifth of interest-only mortgage borrowers said they could not have afforded to repay both capital and interest. Nearly a third said they would struggle to meet all their obligations if interest rates went up by a percentage point. And according to a study for the Council of Mortgage Lenders (CML), a trade body, last year, those taking out interest-only mortgages are more likely to be borrowing over 90% of the value of their homes and to have poor credit records than those signing conventional capital-repayment mortgages.

Buy-to-let mortgages are another fast-growing sort of lending that raises eyebrows. These account now for about a tenth of new mortgages. But house prices have climbed faster than rents, so new buyers pay more to service their mortgages than they receive in rental income. As long as prices keep rising landlords can hope for profits in the form of capital gains, and those who run into cash-flow problems can usually sell their way out of trouble. But what happens if the music stops?

pimco has one answer / pimco hat ne antwort http://tinyurl.com/2a2vk3

Michael Saunders, an economist at Citigroup, a bank, says that taken together these riskier lending practices are cause for worry. Repossessions, though still low by historical standards, rose by 65% in 2006. And many Britons carry a heavy burden of consumer debt as well as their mortgages.

Lenders and rating agencies are heartened by their models, which show that it would take a combination of higher interest rates and falling house prices to make a worrying number of mortgage loans go bad. But this is the exact confluence of events that is causing such woe in America.

you should relax less....

A little less complacency and a little more prudence are in order.