Average LTV is always lower for BTL and self cert as its higher risk business and therefore lenders require higher deposit. Just because current default levels are low doesn't mean self cert and BTL are low risk. They are relatively new market categories and nobody knows where the top of the default cycle will be.Originally Posted by beautifulrock
Re the credit squeeze, I think you have misintepreted my point. I said it had nothing to do with credit risk, which is the risk of their (NR's) mortgage assets defaults. You have confirmed that by stating that they currently have low default levels!!
Liquidity risk is precisely Northern Rocks problems as they rely on regularly packaging and securitising their mortgages and keeping a light balance sheet. The securitisation market has dried up and therefore NR have run into problems as they don't have a strong enough balance sheet to fund internally and have no access to the external funding market.
This is firmly a liquidity risk issue (which was driven out of credit risk issues in the US sub-prime market)
But they dont have a light balance sheet 124bn is not light by any stretch. Nor do they do self cert mortgages. Agree that if they did it would impact on the average LTV if they did as the max self cert mortgage is generally around the 80% LTV. BTL is not calculated by LTV but by pay rate i.e. the mortgage repayment ratio to rental income. This is generally set at 115% but some lenders are not offering BTL mortgages on a 100% pay rate.
I don't know what the risk is but I would not surprised to see a lot of interest in their mortgage books. Any potential buyer would have very low admin fees as opposed to having to get new customers in with those mortgages.
Glad you have accepted its a liquidity issue
Assumed as they were big in BTL they were big in self cert, clearly not!
Not aware of how NR determine limits but LTV is certainly one of the key measures elsewhere, along with rental yield. From what I've seen whatever way you limit in, lenders require a bigger deposit from BTL than personal dwellings.
no have not accepted the liquidity issue as explained this is not the case, cause and effect perhaps.Glad you have accepted its a liquidity issue
Assumed as they were big in BTL they were big in self cert, clearly not!
Not aware of how NR determine limits but LTV is certainly one of the key measures elsewhere, along with rental yield. From what I've seen whatever way you limit in, lenders require a bigger deposit from BTL than personal dwellings.
NR are a pure balance sheet lender and their aim was to continue to grow using what was until a few weeks ago, quiet cheap and freely available inter bank money. They have a little under 20% of the uk mortgage market and have never sold any of their mortgage assets to raise caapital as this would defeat their ultimate purpose of continous growth. it goes without saying they may need to start selling off the family silver to survice going forward.
Getting a bit techy, but Northern Rock have historically been one of the biggest users of securitisations in the market since the late 90's. Unless you consider this "on balance sheet funding"no have not accepted the liquidity issue as explained this is not the case, cause and effect perhaps.
NR are a pure balance sheet lender and their aim was to continue to grow using what was until a few weeks ago, quiet cheap and freely available inter bank money. They have a little under 20% of the uk mortgage market and have never sold any of their mortgage assets to raise caapital as this would defeat their ultimate purpose of continous growth. it goes without saying they may need to start selling off the family silver to survice going forward.they aren't really lending off their own balance sheet and have effectively sold the assets.
The 20% figure relates only to new loans in the first 6 months of this year. Average outstanding figure is nearer 9%.
My mortgage is with Northern Rock and my fixed rate will expire next summer. Will all this mean NR will be unable to offer a competitive rate when I shop about or the opposite, or do you think they will just continue to operate as normal??
Would it be a good time to leave NR? All this business has left me with a million questions!
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Keep with them at the minute. They can't do anything to the fixed rate and if they go totally bust and their mortgage book is not bought (highly unlikely but possible), you retain ownership of your home with no mortgage to pay.
What is likely to happen is that the mortgage book will either be bought or managed to maturity. You'll likely face a rate hike but most lenders are hiking rates anyway as their cost of funding is well above the base rate.
So basically you have plenty of time, with a very slim chance you could end up mortgage free.
Thanks for that ORA. A bit of clarity anyway.
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