Alt Lending Week Ending 4th November 2022

Innovation or rip offs in the UK mortgage market?

There are a lot of products in the UK mortgage market as rising interest rates have comme d’habitude caused panic among those who should know better. One mans panic is another ones opportunity and some interesting deals involving all kinds of clever tricks with interest rates bring the chancers out of their shells. The Times article outlines a lot of them and their advice to punters is caution. Think about the prognosis over the whole lifetime of the loan and work out the possible scenarios that might just apply to you two or three years down the road. Those attractive deals now might just become a nightmare. If the markets move or your circumstances change  don’t expect any sympathy from the people that lent you the money. They will most likely have the whip hand and those nice people who you dealt with can become horned monsters in the shake of an interest rate rise. Most borrowers want to do the right thing and pay what they owe. Bankers want it both ways. My advice to borrowers, do your homework, assume the worst and always read the small print. When markets are volatile it’s usually a lenders market. It is at the moment. Better to wait if you can until things calm down a bit.

 Nat West and Credit Suisse valuations demonstrates market madness.

A couple of articles this week show how potty the valuations of some of the worlds largest banks have become. Nat West boss came out with a gloomy forecast on the prospects for the UK including a 7% drop in house prices and set aside a £ 242million provision for bad debts. The result £ 2.2 Billion slashed from its market valuation. Credit Suisse new CEO presented a turnround plan and the market knocked its value down to below $ 10billion. But these are real banks with lots of clients and products and expertise. Both have net assets of over $ 40 billion yet are trading at a massive discount to those asset values. Start-up Revolut on the other hand recently migrated to Lithuania is said to be worth  about the same as both banks put together. Not in my world I’m afraid. But this is just an example of craziness on a grand scale. It can’t go on and it won’t.

Depressing credit signals by Barclays

Barclays has withdrawn its 95% mortgages from the market fearful of the fact that some borrowers might fall into negative equity. While I can understand the sentiment behind this move it is yet another signal that availability of credit products in the UK is now purely a box ticking exercise rather than a response to other far more meaningful credit information. The high cost of residential property in the UK makes it more difficult for first time buyers to get a foot on the ladder. This policy is an arbitrary credit tightening which other mainstream banks will soon follow. I would like to see a return to sensible banking practice. As I mention above most borrowers want to do the right thing but rigid credit criteria do not make good decision making. A young couple buying their first house will not want to default and go back to renting even if they are in negative equity. Their creditworthiness should be assessed on their ability to service the debt and what’s more their proven willingness to pay up. People who have spent years renting and have a perfect track record should not be frozen out of the market just because the value of their security has fallen slightly. Some real world common sense should apply. Speaking to a mortgage adviser these days has become like talking to a rule book. God help us.

 Howard Tolman is a well known London based Banker, It specialist and entrepreneur