Monday 7 December 2009

Ordinary People Still Getting Squashed by Crippled Mortgage Market in Canada and UK

Today's Globe and Mail article Never missed a mortgage payment and still facing foreclosure about the nasty fallout on innocent responsible homeowners reminds me of a situation just as bad, if not worse, in the UK. A family member who has had a mortgage with lender Nationwide for the past two years is being refused a new mortgage for an attempted trade-up to a larger property. Like the unfortunate Ms. Matthews in Canada, this person has never missed or been late on payment, nor missed any payments on loans of any sort.

Worse than the Canadian situation, the person has an impeccable credit rating and a highly secure job. The reason given for the refusal of a new bigger mortgage - the person has used on a few occasions the planned overdraft facility on a bank account, an overdraft which was promptly paid back. It's ironic and laughable that a convenience which the banks happily provide and promote (for all the fees they garner) has been used as the excuse for the refusal.

I don't know for sure but I suspect that Nationwide in reality probably doesn't have the money to lend in the global aftermath of funding scarcity described in the Globe article. Even before the crash Nationwide had begun severely restricting mortgage availability according to the March 2008 Times article Nationwide shuts door on mortgage hunters.

The immediate consequence is one less house in Scotland that will be sold. We've gone from credit gluttony to credit starvation.


Traciatim said...

Ordinary people?

So a person who has avoided their obligations in the past with no down payment borrows 127000 from a company at 9.15%, and pays for three years but is now not eligible for renewal from that same company or another company for some reason?

Something doesn't add up or we're not getting the whole story somewhere. Borrowing 127000 with no down payment results in a mortgage of somewhere near 132080. This results in a payment of 276.66 weekly at 9.15% for three years (plus insurance or taxes in there too, to make the 292 they are claiming? Possibly the taxes are in there and they are doing interest only?) resulting in an ending balance of $123281.15 after three years. They claim the ending balance is actually higher than the borrowed amount.

Something seems fishy here. Why can't someone with 4 years or more of perfect payment records just renew with another lender that has the capital, or just use a bank?

Also, they are using someone with nothing down on possible interest only payments with a history of non-payment and comparing them to a problem where people using non-traditional lenders with more than 20% down are hard to track so you can't find the total of 'the problem' when the example person obviously had to pay the largest CMHC insurance available.

I suppose I shouldn't be too harsh. Maybe I will be in a similar scenario when I have to come up to renew in 2012. I'm with a bank lender, but I did use some of the fancy lending options available. Hopefully by then I'll be at a much better loan to value ratio and the family income will be at a much more appropriate level. At least, that was the plan when I started.

CanadianInvestor said...

Traciatim, I find it hard to judge Ms Matthews' degree of risky behaviour without knowing all the facts. If she has managed to hold it together at a high interest rate and make all the payments, that alone is a pretty strong argument for allowing it to continue with a new mortgage, considering that it will also be at a much lower rate. Has something changed markedly for the worse in her situation?

It doesn't look to me like the problem is with individuals who cannot or will not pay. The companies really just don't appear to have the money to lend. The ones that lend to this higher risk borrower seem to be very profitable - take a look at Home Capital Group (TSX: HCG). They have not missed a beat in steadily climbing profits so far through 2008 and 2009.

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