Mortgage stress testing to be abandoned

[junglerower]

This caught me by surprise:
https://www.theguardian.com/money/20...tor=biztoc.com
I cannot even think a mortgage lender does not want this security built-in.
Does it mean prices go up again? It only results in more people being able to buy a house, while still choosing from the same pool of houses.

[AndrewDod]

What a joke and what foolish idiots. Of course interest rates will never rise, and the taxpayer (and savers) will bail out failing banks.

This is a sure recipe for an economy to go down the drain.

Why the hell can't they just do the obvious, and allow property prices to fall naturally, as they will do eventually (and are already doing in real terms, even in Sterling, let alone a basket of external currencies).

[loanarranger]

This article appeared today following comments made by Andrew Bailey of the BoE
The Bank of England has said that the health of the UK economy has "deteriorated materially” as it warns it will be harder for families and firms repay or refinance debt.

Banks were told to ramp up capital buffers to ensure they can weather the storm.

"The economic outlook for the UK and globally has deteriorated materially," the Bank said as it published its latest Financial Stability Report, largely blaming the impact of the war in Ukraine.
Although downside risks will present headwinds, the report said that UK banks have capacity to weather the impact of severe economic outcomes,” it said.

But it would lead to less money flowing to borrowers, officials said in Tuesday’s report.

“In such scenarios, banks are likely to manage prudently their lending activity, commensurate with changes in credit quality and the real economy.”

Some households are also likely to struggle with repaying their debt. Around 80% of mortgages are currently on fixed interest rates – compared with just 30% nine years ago.

But some 40% of these are set for renewal this year or next, pushing interest rates up for these households.

Households have come under increasing pressure in recent months, as the UK's annual inflation rate hit 9.1% in May.

"Tighter financial conditions and reduced real incomes will weigh on debt affordability for households, businesses and governments in many countries, increasing the risks from global debt vulnerabilities," the BoE said.
Households with the lowest income, which spend the largest proportion on tax and essential items, would find it hardest to adjust spending in response to rising prices.

Businesses with higher exposure to energy and fuel prices such as manufacturing and transport could face higher costs, even as falling household real incomes damp demand for discretionary spending. In the medium term, the BoE predicts that this slowing demand will lead to a rise in unemployment.

[AndrewDod]

Banks were told to ramp up capital buffers to ensure they can weather the storm.

Meaning - put savers and taxpayers at risk while doling out more money to people making bad investments (that will fall in asset value) while they cannot afford to serve the debts.

[loanarranger]

Hi AndrewDod
I think the theme was designed as a caution to the potential impact which the UK might be facing going forward even though similar events are occurring throughout the world.
With all the forecasts it is only being suggested that lenders will reduce their appetite for lending adopting a more risk averse approach towards personal borrowing in order to avoid risking a steep curve in borrowing defaults.
One only has to look at the increased costs of borrowing in the BtL sector with several lenders offering rates for 2/5 year fixed in the lower to mid 5% range and whilst this is not too dissimilar to those charged before the banking crisis in 2007 we have subsequently become use to a much lower interest rate environment and by default many have used low rated borrowings on Credit Cards , PCP contracts to fund an artificial life style. Bailey is only trying to make sure that banks/ Building Societies and other credit providers take a more “conservative” approach to borrowing until the economy and moods of confidence improves, in the meantime it is hoped that savers will receive higher rates of interest for hard earned savings which itself is long overdue.
Thanks for responding.

[leasee123]

I think there are signs of bank lenders cutting mortgage rates now but LA can confirm?

I think the rates depend heavily on competition (and of course costs in the lending itself) and mortgages are deemed to be low risk generally.

Going towards 90% or 95% LTV is quite concerning. Not least because I suspect there is only one reason for it and that is to gain voters. Longer term it has the potential to create more instability in the economy.

I think we are going back towards the pre-covid trends but probably worse. The silent depression continues...

[AndrewDod]

Going towards 90% or 95% LTV is quite concerning. Not least because I suspect there is only one reason for it and that is to gain voters. Longer term it has the potential to create more instability in the economy.

Several million debtors in negative equity is certainly a way to crash the economy. And with that debt passed to the next generation.... "Generation rent" will need to have a re-think about what they were concerned about.

[loanarranger]

I have not noticed any lender dropping their rates rather the reverse.Today Paragon gave notice that current products which were only recently increased would be withdrawn and new Non Portfolio and Portfolio products would be introduced on Friday
Each day notices are received from other lenders to the same manner, three lenders now are quoting rates for 5 yr fixes of 5% plus, not attractive to quote to clients

I do not keep a ready eye on the residential market rates as these represent a very small number of applications compared toBtL.

[loanarranger]

Just going through my emails and this was received from Clydesdale Bank on Residential Loans

Following the decision by the Monetary Policy Committee on 16 June 2022 to increase the Bank of England Base Rate to 1.25%, we’re making some changes. On 7 July 2022, we will increase our Standard Variable Rate to 5.49%, our Offset Variable Rate to 5.70% and our Offset Variable Investment Housing Loan Rate to 6.10%.

[humptydumpty]

What a joke and what foolish idiots. Of course interest rates will never rise, and the taxpayer (and savers) will bail out failing banks.

This is a sure recipe for an economy to go down the drain.

Why the hell can't they just do the obvious, and allow property prices to fall naturally, as they will do eventually (and are already doing in real terms, even in Sterling, let alone a basket of external currencies).

Cant agree more with this. But never fear, allowing more funny money will give inflation no cause to stop, which means most likely, people borrowing less due to cost of living increases - no interest rate rises fuel remains expensive and fuel/energy drives inflation. I think at this moment there is no way out of a natural adjustment.