Around 150,000 home owners who have a mortgage with Lloyds Banking Group are in negative equity, and the number looks set to grow.
The bank’s admission came just before today's Halifax survey, showing house prices are now down 3.7% on this time a year ago, and in April fell 1.4% on March. The UK's average house price now stands at £160,395.
The Lloyds figure of 150,000 in negative equity means that 13.5% of the value of its mortgage portfolio is affected.
Altogether, Lloyds – which is 41% owned by the taxpayer and is Britain’s biggest mortgage lender – has three million mortgage customers.
Lloyds seemed unworried by its own revelation, which means that around 5% of its borrowers could be trapped if they want to move home.
However, a spokesman said: “For those who do want to move, we offer an equity support scheme. This enables our borrowers in negative equity to move without worsening their current loan-to-value position.”
The scheme, which went live in February, lets home owners use their savings as a deposit instead of seeing them swallowed by negative equity. They can use any money they have saved as a deposit for the new property rather than having to use it to plug their negative equity gap.
The scheme is aimed at existing borrowers with Lloyds TSB, Halifax or Cheltenham & Gloucester.
In March, Northern Rock revealed that one quarter of its ‘bad bank’ mortgages are in negative equity.
A total of 107,000 of the 400,000 loans taken on by UK Asset Resolution, the government-owned body that controls the ‘bad’ part of Northern Rock, are affected.
The borrowers took out Together mortgages, which allowed them to borrow 125% of the value of their home. However, Lloyds says that most of its borrowers have relatively small mortgages.
Comments
rantnrave, Sibley's..., et al:
Of course the financers are the winners. That's why they do it, after all.
In halcyon times, there are no restrictions; no clauses; no loopholes - no problems. Just profits and bonuses and the good ship sails on steady waters. When times are less favourable, then all the oars are pulled in; the sail is lashed down and the poor old ship is left to go with the flow - which inevitably results in heading towards rocky outcrops. The bankers then save their own souls, and the borrowers are still the ones paying for the privilege of their safety and comfort.
Sibley's... - I both agree and disagree with your view on "minor benficiaries". Take a long-term view over the housing market - say fifteen years. Typically, of those, five will be brilliant; seven will be terrible and three will be steady away. For those that ride the whole period out, what you 'make' in the five years of feast is more than eroded by the seven years of famine. All in all, Agents; builders; DIY outlets and every associated trade with the property industry would FAR prefer a level playing field with slow but steady growth year-on-year - but this will never happen due to the nature of the market in which we choose to trade.
You may wonder why we do it. Believe me, I do - A LOT! Simple answer - for some, it is profitable. There are those who skip in and out of it when the times are good (a la Will Hicks - who WILL invest in property again, mark my words...), and make enough to ride out the storms. Others simply know no different, and stay with what they know best.
Some simply love what they do. Believe it or not, helping a buyer or seller to realise their dreams is a wonderful feeling; do it fifty, sixty or whatever times a year and all the 5h!t that comes with the territory is quickly forgotten... ;o)
SBC - the key here is the difference between those who win from higher house prices and those who think they have won. Alas, too many homeowners are in the second position, when in reality they haven't won at all. A lot are discovering that now, having MEW'd their way on world cruises or discovered how much more they need to borrow to upsize.
Exactly PeeBee, sure there's been a number of minor beneficiaries of the property boom (ie EAs) but the lenders have been the biggest winners.
Pee Bee - if you're saying that the majority of the benefits from the house price bubble have gone to the banks, then I'll have to agree with you for once!
MikeWilson (I'll get it right this time...) & Sibley's...:
WOW! Interesting scenario. So... the BANK values a commodity at 'x', lends upon it based upon the value, then reserves the right to re-evaluate IF AND WHEN IT SUITS THEM!
Needless to say, it wasn't when the LTV was dropping, and better rates may have been available to borrowers...
YET ANOTHER show of proof that the BANKS are the real winners in the property stakes. Up, down - there is always a win:win situaltion that can be engineered for them.
I wonder if a legal challenge will be made...?
Bob: Proof that you shouldn't believe everything you are told...
Re: comments below about how to define what a property is worth.
I was once told that on the day that you buy a house it is worth what the immediate underbidder was willing to pay.
After that day it's worth is entirely dependant on what circumstances you need to sell it under; an hour to obtain offers will get you a much lower price than 3 months.
Mike, in answer to your question, HPC's resident financial advisor discussed this yesterday:
"Picked up a couple of snippets over the weekend (from reliable sources) that Lloyds Banking Group are carrying out a back business review on their BTL mortgage book basically going back to 2006 with specific focus on loans at the time of 85% LTV - those that meet this particular lending level are to be re-valued at todays prices and the Bank will then "negotiate" with the borrower. This seems to tie in with the new chief at lloyds decision to get any major bad news out in the open asap (eg decision not to contest the PPI miselling claims)."
http://www.housepricecrash.co.uk/newsblog/2011/05/blog-more-house-viewings-from-a-low-level-33400.php
@PeeBee
You said:
"I was always taught never to make a statement that can be answered by "SO WHAT?".
There would be a 'So What' if Lloyds BTL mortgages have a fixed 'loan/equity' clause. I know some BTL mortgages have a clause that states the loan to equity ratio must not fall below X% and the lender has the right to re-value the property and demand a cash injection to get the ratio down to the prescribed value.
Do Lloyds' BTL mortgage have this 'feature'?
@Simon
I appreciate your answer (so many dont answer questions after making statements making the debates on this site a bit pointless sometimes)
anyway...I dont think house prices being at 3.5 times average salaries is the answer personally, that would be some drop in the market and you would find no one with a mortgage over 70k to 80k would either want to move or be able to move based on Neg Equity. So all of a sudden you would have very low prices but very few houses coming to the market and we all no what a demand out weighing supply would lead to!
I appreciate the headlines are reporting downward prices, I have never promoted they should rise as such, infact I have always said its all relative up or down which ever comes first the oposite will follow at some point after, if it does drop 30% I will be moving up market pretty sharpish, but I do still think 90%/95% mortgages can be of use to some people under some circumstances!.
anyway appentice is on BBC,so I'm off to find out why the EA has decided working for Lord Sugar would be any better than being an EA for the next 5 years........8>)
RE Ric "Where do prices have to fall to, to make 90% or 95% mortgages a good product or okay prduct....can someone who says ban them answer this!"
How about when the average home cost 3 1/2 times average salary like before this housing bubble. Then 90-95% mortgages are fine as the risks are mitigated.
Pretty basic stuff. ;)
"I just dont see the 20% and 30% some talk of over 5 years"
In fairness Ric - as today's Independent points out - factoring in inflation, prices are near 30% lower than the peak in 2007 (20% lower without inflation).
The question is, what happens next?
Certainly, pretty much every publication has become bearish on property (not least the godawful Mail & Express). Even May's Hometrack report acknowledges further falls in Q3 & Q4 of 2011.
Tidy Job: You crease me up. Sharp is not the word.
Care to attempt to be smart again - but this time to provide a smart answer to my question?
@PeeBee
You're not a very quick learner then. I find that most of your statements can be answered like that.
Tidy Job: "Standard & Poor’s has warned that if house prices fell by 5% in 2011 and a further 5% in 2012, 30% of buy-to-let loan balances would be in negative equity."
I was always taught never to make a statement that can be answered by "SO WHAT?".
Unless these properties need to be put to market... you fill in the blanks.
RANT & TIDY (sorry bit rushed this of on an appointment)
I understand your point in both cases, that said there are too many IFs in predictions! What IF prices were to increase after they have fallen! which they will...... What then, no mention on that as it would have to read IF price fall they WILL then rise! rubbish headline that would be!
I just see the prices falling story without the what will happen after that! They will never remain low if the do fall to what ever level they have to.
It is a cycle is it not.......but I understand the more we promote prices are falling the more likely they will fall further than they need to.......I just dont see the 20% and 30% some talk of over 5 years.....prices in my opinion would be too cheap and the banks would never recover from the mess it would leave...plus it would not help FTB as BTL investors would pick up every cheap deal under the sun (as I have said before)
still we all have an opinion and I respect your views oh and Tidy I too "muggins" pay taxes, personal and business so I am shafted twice over!
Ric - your opinion of the British public's financial planning skills are a lot higher than mine!
I would estimate that in the recent past, a lot of those who took out a mortgage at eight times their salary etc assumed they would never get into financial trouble because the bank had done all the risk assesment and decided the loan was sound.
I think those borrowers put too much faith in their lenders, who in reality knew they could repo any one falling behind with payments and get their money back if house prices kept rising. IF house prices kept rising... Standard thinking in a ponzi / pyramid scheme.
@Ric
I might agree with you if muggins here didn't have to bail out the banks when it all goes t*ts up. For example:
Standard & Poor’s has warned that if house prices fell by 5% in 2011 and a further 5% in 2012, 30% of buy-to-let loan balances would be in negative equity.
Lloyds Banking Group are carrying out a back business review on their BTL mortgage book going back to 2006 with specific focus on loans at the time of 85% LTV - those that meet this particular lending level are to be re-valued at todays prices and the Bank will then "negotiate" with the borrower.
Tidy
up down up down up down, arrghhhh Ray is merely saying cut all of the Ban this Ban that rubbish!
HPC'ers say ban 95% mortgages etc.....a load of tosh.....
A grown up person will make their own decision as to whether a 95% mortgage is good for them or not...95% mortgages are not even available to anyone the criteria is strict but most importantly they do not come with the tag "YOU MUST HAVE" it is an option.....
Just like a smoker smokes knowing the effect can be much more costly than falling property prices.....
@Ray
I don't think it takes a gift of foresight or the advice of pundits to see which way the wind is blowing. Property prices experienced a massive bubble which is now deflating. It has happened before and will happen again. No big deal really.
You seem to be in denial. Why is that?
Ray - there is a current article on the front page of this very forum that says house prices are predicted to fall for the next five years. You posted a comment in the discussion there too.
Simon....RUBBISH! Simple.....!
Just tighter criteria on the people 90% and 95% mortgages are given to plus a Surveyor earning their money and ensuring the loan amount seems safe.
Your suggestion would mean 60% and 70% mortgage are also worth banning if you listen to some commentators offering their opinion on future prices. Perhaps Cars are no longer worth making and should be banned if petrol prices keep rising?
Where do prices have to fall to, to make 90% or 95% mortgages a good product or okay prduct....can someone who says ban them answer this!
@simon
Where do you get your information that house prices will continue to fall over, say, the next five years - the same pundits who failed to predict the current situation?
Ban this ban that - nonsense.
The rate of people in negative equity is going to clearly increase as house prices fall over the next few years. We need to ban 5-10% mortgages when house prices are falling by more than that.
Also the governments new first time buyer scheme is suicide for the buyer as well, that's going to trap most of the applicants in negative equity.
The rate of people in negative equity is going to clearly increase as house prices fall over the next few years. We need to ban 5-10% mortgages when house prices are falling by more than that.
Also the governments new first time buyer scheme is suicide for the buyer as well, that's going to trap most of the applicants in negative equity.
Pee Bee - following the law of averages, even YOU might be right every now and then ; )
"@PeeBee - Lot of sense in youir last post"
Thanks, Ray. I guess even I am allowed to shock you all with one every now and then... ;o)
@PeeBee - Lot of sense in youir last post.
@rantnrave - I take your point.
However, some of these so-called 'think tanks' and 'finance people' do take inflation into account. over a longer period......
I.e. say inflation is at the governments target of 2% p.a.for the next five years and IF house prices increased by say 1% p.a. for the next five years ( I am not saying that they will ) the Red Tops could, and would headline " Value of Houses to Fall By One Percent a Year over the next Five Years!"
Obviously there is a major difference between Value and Price but many would take that to mean that their £200,000 house would actually lose £10,000 cash over the period.
It is not what IS, but what SEEMS TO BE that will spook any market - that is why care is neeed in these things. Just a thought!
James: Why stop there? Car loans; holidays; debt consolidation - ALL of which are taken upon goods or services with NIL END VALUE per se - will you advocate THOSE being looked at as potential mis-selling fodder?
If someone is prepared to take out a loan to buy something, then it is THEIR RISK. They know the onus for repayment - whatever the commodity is.
The lender simply wants to know that the debt will be serviced.
The fact that these loans are in negative equity is a non-headline. It matters not a jot that a property is 'worth' less than the mortgage held on it, UNLESS the borrower requires to sell the property for less than the amount owed,or relinquishes the property voluntarily or otherwise.
Of these headlined 150,000 loans, how many of them does this apply to, I wonder?
Simply more fodder for the doomsters, methinks...
Hi Johnson
Not every vendor who decides to take a bid on the table means that bid is the only one they will ever get and therefore that is all the house is worth.
Your saying - A house is worth what someone will pay for it........but a property can also be worth more than what someone will pay for it....trust me!
If you were to own a house (I will assume you do for now) and I offer you 50% of what you are asking the day you put it on the market....would you concede that well okay that all it is worth then, so I will take it? or would you ask your agent to work a bit harder and PS its the first day of marketing so far too early (no you wouldnt I am sure) My point is you could say I will take it though!
Some vendors can take less than a property is worth, for what ever reason they want, so my point on my previous post is 95% LTV can sometimes be as safe as 70% LTV!
You just need to be savvy!
Ray - I understand that all of the indices are in nominal rather than real terms (ie, they don't take inflation into account).
Let us assume something (a widget) cost £100 12 months ago. Theoretically, an identical widget would cost around £104 now, all other things remaining equal. If it only costs £97, then it has fallen £3 in nominal terms, but £7 in real terms.
Applying this to the Halifax data, it is easier to look at the annual figures (since the inflation figure that is most quoted is the annual one). Halifax are saying prices are down 3.7% over the last 12 months and inflation is running at circa 4%, so give or take, this points to roughly 7.5% down in real terms on an annual basis.
Does that mean houses are 7.5% more affordable? Salary increases are running at less than inflation, apparently 2% up year on year. This would suggest houses are 5% more affordable than a year ago - not massive, but not insignificant either.
There is a bigger picture here. I reckon we are storing up the seeds of another MASSIVE miselling scandal. Lloyds just set aside £3 billion for the financial insurance misselling scandal. No one saw it coming or predicted it. But if they keep offering 95% mortgages I reckon a much, MUCH bombshell could await them. I am SURE they have economists in there company who privately project more modest house price falls (everyone else is - except the Daily Express - so I am sure they are too). I reckon what will happen is that eventually a 95% borrower in negative equity in 2 years will sue Lloyds for misselling the mortgage. The emails will be uncovered and Lloyds and others will have an absolutely MASSIVE liability for all the negative equity they have created. That would really keep me awake at night if I was that new CEO.
This just underlines the madness of lenders coming back into market with 90-95% mortgages. If is NOT helpful or responsible lending. Most independent comentators now agree that UK house prices will decline a further 5-10% from here and so anyone lending more than 90% is pretty much guaranteeing their customer the misery and enslavement (physically) that is what negative equity really is.
@Ric. Definitely!
@NEEA
...."From Halifax today, prices down 1.4% MoM"
Just a thought ;-)
Was this taking into consideration adjusting for general inflation? Example Only: Say it is up 0.4% on the month and the actual property price reduction was just 1%, adjusted would then make the unqualified figure of 1.4%.
But if not adjusted what then? Could non adjusted actual prices be up! Probably not, but more detail required,
I am sure someone will oblige.
WT - other sources (ahem) inform me that Lloyds has approximately 25% of the mortgage market. This suggests that 600,000 loans are in n'equity up and down the country.
@ric
I dunno. Surely if all the vendor can get for it is £70k then it's worth £70k?
Better for the FTB just to save for a couple of years.
I think 95% mortgages are not crazy in every case as such, assuming the lending criteria is very very strict and the surveyor does his job well at valuation stage.
Example:
House worth £100k lets say and worth that today (humour me)
What if a FTB can get it for £70k vendor just keen to sell and wants rid!
Surely lending £66,500 is a safe (ish) bet? and a good opportunity for a FTB to get on the ladder?
My point being subject to purchase price 95% mortgages can be okay! (i think?)
Only 150,000, based on what value? I think the number is even bigger and certainly will be if were heading down to 2003 values.
95% mortgages are crazy too. Last week the Telegraph labelled them "honeytrap" which I think is pretty accurate.
Northern Rock would have discovered their neg equity mortgages 1 minute after completing on any one of the 125% mortgages they wrote!
100% plus mortgages that was crazy even I go along with that one!
Oh dear. I think we're gonna see a proper dive in property values over the next few years. Time to be more realistic about prices and for sellers to get ahead of the curve rather than following this sucker down. Many are still trying in vain to grab a 2007 sale price.
From Halifax today, prices down 1.4% MoM
http://www.lloydsbankinggroup.com/media/pdfs/research/2011/HousePriceIndexApril2011.pdf
Oh this one will be fun!