Vince on statistics

Around 32,000 borrowers still own less than a quarter of their house, and 2,532 are more than three months behind on their payments, owing £407.5million. Liberal Democrat leader Sir Vince Cable said last night: ‘The run on Northern Rock marked the start of the biggest economic disaster in our lifetimes.

‘It’s an example about the potential catastrophe if the industry isn’t properly regulated in the interests of financial stability. Enormous numbers of people have been ruined as a result of reckless lending for which they ultimately paid a heavy price.’
The Newcastle-based lender’s collapse was followed by the failure of Lehman Brothers in the US, and the taxpayer-backed rescues of Lloyds and NatWest owner Royal Bank of Scotland. The Rock was widely seen as the nation’s most reckless lender, doling out around £7billion of ultra-risky debt in 2005 alone, much of it to first-time buyers.

Some Northern Rock mortgages have gone into default, yes. Some mortgages from all sorts of lenders have gone into default.

The question we’re interested in is whether the rate at NR is higher than at other places. Which is, of course, the one number we’re not given here.

28 thoughts on “Vince on statistics”

  1. The govt wanted the extra lending, both residential and inustrial.
    The rot became obvious when Brown bailed out the Icelandic rate tarts.

  2. 75% is not that much different from the amount still outstanding 10 years into a 25 year repayment mortgage correctly repaid.

    Morons.

  3. What definitely did not happen:

    Northern Rock: Go on, buy a house
    Person: I don’t want to buy a house
    NR: Go on, here’s some money
    Person: I don’t want it, I don’t want to buy a house
    NR: GO ON!!
    Person: Oh, all right.

  4. The mortgage lending sector must be properly regulated, but we must be more inclusive and ensure people with little chance of paying it back can get 100% mortgages.

    I’m pretty sure that would have been Lib Dem policy ten years ago.

  5. Northern Rock wasn’t a particularly reckless lender. It was a reckless borrower and it was a lack of liquidity that did for it when it couldn’t find it’s ongoing operations.

  6. 2,532 are more than three months behind on their payments, owing £407.5million
    That works out at 161k of arrears per borrower or over 70% of an average house. That has to be bull-shit. It could only approach a half-truth if the repossessions team have been wound up and they just pretend they have one.
    Unless my arithmetic is wrong again.

  7. Bongo’s abacus is more lubricated than mine, but I made it a monthly repayment of the order of 50 grand each. The sentence is clearly bollocks.

  8. I thought house prices have risen and that there was not much of a fall 10 years ago, so how can anybody have negative equity?

  9. Vince Cable has a nerve: criticising the British housing and mortgage market which is the wonder of the world putting people in cheap well- built houses with not a trace of land price inflation.Sayid Javid may have said in his February Housing White Paper that “the housing market is broken”. Another traitor!
    Brexit will cure all this .Stands to reason.

  10. @Rob
    “What definitely did not happen:

    Northern Rock: Go on, buy a house
    Person: I don’t want to buy a house
    NR: Go on, here’s some money
    Person: I don’t want it, I don’t want to buy a house
    NR: GO ON!!
    Person: Oh, all right.”

    My memories of the mid 2000’s was this was exactly what was happening. I lost count of the number of lending concerns that were contacting me & attempting to pursued me to borrow money from them. I totted it up at one point. I had currently open offers, well north of a million quid. And none of them seemed to be particularly bothered about security or what one might spend it on. I can remember one telephone salesman suggesting things I might find to do with a hundred K. A new car seemed to feature prominently. I don’t think an an expressed intention to spend it on hookers & coca would have bothered him, provided I signed.

    Part of the reason I did a lot of liquidation around then & started the process of fucking off for good.
    And I still think the UK stinks. An investment strategy that consists of all the same class of assets that, should one need to liquidate them, would have to be sold to all the same class of potential buyers, is suicidal risk. And that’s what regarding housing as an “investment” is.

  11. @Bongo & Ducky
    The £407.5 million will be the total balance at risk, being 3+ payments or more in arrears. 2,532 mortgages with total balances owed which average out to £160,000 (approx) each.

    I suspect that as usual, the journo didn’t understand it the press briefing, and there was no sub to correct them.

  12. @BiS
    My memories of the mid 2000’s was this was exactly what was happening

    Yes, kinda, in some quarters. But the effect was reduced compared with now by interest rates being at the more sensible level. With rates still on the floor after 10 years, and everyone loaded up on cheap money whose affordability they “calculate” by looking at the low-interest repayments, not giving a thought to what might happen if rates went back to their long-term historical average of more like 12%.

    Whether anyone would care to admit it or not, speculation on property has in the last 35 years driven house prices upwards, and low interest rates were the added petrol. While a great admirer of Margaret Thatcher for many (not all) of her actions, I think the selling of council houses at a discount did much to start property price inflation. Instant profits all round, for nothing.

    …..suicidal risk. And that’s what regarding housing as an “investment” is.

    *Doffs hat in a Spain-wards direction*

    I couldn’t agree with you more. Some get lucky (if you call being leveraged to your nostrils lucky), many more lose.

  13. Alex: Northern Rock wasn’t a particularly reckless lender.

    Oh yes it was. It offered >100% mortgages with the >100% portion expressed as a limit on a credit card account that accompanied the mortgage account.

    You’re right, of course, that what caused the collapse was an inability of Northern Rock to finance itself in the interbank market which was to an extent due to its precarious loan book.

    Demutualisation hasn’t been an unalloyed success for many building societies in much the same way that the Co-Op Bank came unstuck by forgetting what its core business had always been.

  14. Formertory,

    ‘I think the selling of council houses at a discount did much to start property price inflation.’

    Selling the council houses was a great policy but they should have used the money to build more which would have slowed price inflation and also renewed the stock.

  15. FormerTory, sure, that’s what it’s supposed to mean. But, the recovery rate should be well north of 60%, probably north of 80%. So the amount at risk is somewhere between 163-82m, call it 122m or 48 grand per secured asset, probably less.

    There’s a bloody good chance Cable didn’t understand it, let alone the pissed up Journo.

  16. “Enormous numbers of people have been ruined as a result of reckless lending for which they ultimately paid a heavy price.”

    Have they? Even if they’ve got a mortgage that they can’t afford, are they “ruined” and have they “paid a heavy price”?

    Northern Rock crashed February 2008. Since then, average UK house prices are up 21%. Even if you couldn’t afford to pay the mortgage any more, you could sell the house, pay off the debt and trouser a profit. And you’ve had ten years of living in the house, all for a fairly low monthly payment.

    What “heavy price”? In what way “ruined”?

  17. @BobRocket, yes, I suppose I might have made it clearer that it’s the “at a discount” bit I thought was outrageous. The sale of council housing at market value I wouldn’t have had a problem with.
    @Ducky – Yep, understood. The practice may have changed in recent years but for accounting (and, amazingly, common sense!) purposes the more delinquent a loan is, the more likelihood that it’ll eventually be a write-off. Any post-writeoff recovery on the loan / debt goes straight to the bottom line. I don’t know what NR’s practice was but some years ago a lender I worked for would be making significant provision for “bad or unrecoverable debt” at 3+ payments in arrears and the provision would reflect the worst-case “there may be no recovery” situation – hence the balance at risk being the whole balance. I’m sure it will have differed in different lenders, depending on how much piss-taking of HMRC the FD thought he could get away with.

    Also agree that Cable might have struggled….

    @Meissen Bison, the much-debated 125% mortgage was written on the usual mortgage terms up to 100%, and on a fixed-rate personal loan for the rest, and all subject to a reasonably high (by the standards of the time) burden of proof on income and outgoings. The lending rate was high in recognition of the risk, and in reality, the arrangement simply recognised that the first thing many buyers do when they’ve bought their house is to go load up on unsecured debt elsewhere (at usurious rates and zero critical underwriting) to buy furniture, carpets, gadgets and what-have-you. Not as stupid as it looked.

  18. @Formertory – I quite agree with the reasoning but it’s a crazy lending policy. On the reasonable assumption that a house buyer will want to spend money on carpets, curtains and furniture, a lender should make less rather than more money available for the mortgage itself to avoid the borrower becoming over extended.

    What NR was doing was effectively capturing the entire borrowing capacity of its mortgagees which is tantamount to overlending.

    MBNA was doing similar things with consumer credit at that time by offering bigger limits to credit card customers than its rivals which precluded many minimum payment cardholders from taking up balance transfer deals.

    Clever? Only up to a point and with cards at least the sums involved were smaller and the portfolios were larger.

  19. Alex said:
    “Northern Rock wasn’t a particularly reckless lender”

    Hmm. I was looking at buying a house in the ’00s at auction; I had recently switched from full-time employed to mostly self-employed, so had no proof of income (and not much income either). Mortgage broker said “no problem, Northern Rock will lend it”. In the end I lost the auction so it didn’t happen, but the loan was all arranged and there if I’d wanted it.

    What made me think Northern Rock were making risky loans was not so much the fact that they were willing to lend to me with no proof of income, but more that they were the mortgage broker’s immediate solution to a difficult situation.

  20. On the reasonable assumption that a house buyer will want to spend money on carpets, curtains and furniture, a lender should make less rather than more money available for the mortgage itself to avoid the borrower becoming over extended.

    @TMB – I don’t think we’re disagreeing significantly, really, but at the time cross-selling of multiple services and products was all the name of the game. Better (as NR saw it) to get “a deeper customer relationship”.

    Completely agree about avoiding the borrower becoming overextended, but to pick up the original point again about speculation on rising house prices, it’s been my experience in the past that because they don’t want to “miss out”, and mortgage debt for some reason is seen as “good” debt, if you reduce the mortgage amount borrowers will attempt another personal loan or credit card for the difference. Usually by lying through their teeth to an unsecured lender.

    More difficult these days than 12 years ago, but I’m sure it goes on still.

  21. I was looking at buying a house in the ’00s at auction; I had recently switched from full-time employed to mostly self-employed, so had no proof of income (and not much income either)

    So why on earth were you trying to buy a house?

  22. @Formertory

    Yes, we’re broadly of one mind and it’s a matter of balancing a commercial strategy to cross-sell or bundle against imprudent credit policies.

  23. Formertory said:
    “So why on earth were you trying to buy a house?”

    One I liked the look of came up for sale; the lack of income was only temporary while the self-employed work grew; Northern Rock was willing to lend me the money; if I’d won the auction it would have made sense.

  24. Formertory,

    Nothing wrong with the discounts, the tenant paid for the operating costs of the property whilst the capital value of the property rose, why shouldn’t both the council and the tenant benefit from that capital increase ?

    (the council being the owner of the property and the tenant being effectively a shareholder of the council)

  25. Richard, so the problem wasn’t just NR’s irresponsible willingness to lend, as your irresponsible willingness to leverage yourself to the hilt to enter in to a speculative property investment…….

    I suspect your broker was kidding you on. The best he could have had at that stage would have been an “agreement in principle” to lend, which doesn’t bind anybody to anything; NR could have pulled the plug on you for any reason, or none, leaving you up the well known excremental creek sans paddle, given the auction scenario. To have had a binding offer (which even then the lender can back out of) the lender’s solicitor would have had to have seen the Deeds and done a couple of hundred quid’s worth of work.

    You may have had a narrow escape!

  26. BobRocket, the discount was wrong because:

    1. It represented a deferred tax-free capital gain which could be enjoyed after a few years’ delay; a direct transfer from taxpayers to individuals after years in which the taxpayers subsidised the tenants’ accommodations.

    2. The tenant didn’t really pay the operating costs. Taxpayers (not “shareholders”) shared the costs, and tenants made a contribution for the right to live in the house and thus be separated from the weather outside. Why should the tenant benefit from increases in value occurring before they bought? Why should they not be in the position of a normal buyer, paying the current market value for the house?

  27. @ FormerTory
    The discount was politics to make it popular to the point that tenants would not give up in the face of petty-minded obstructionism by council officials who didn’t want their empire shrunk. It was over-generous but some incentive was necessary to get the ball rolling. The other reason for the discount was that the sitting tenants were paying a subsidised rental that did not cover the cost so the value of the houses with a sitting tenant was below the open market price for that house with vacant possession.
    The original plan was that councils should use the proceeds to build more social housing for those on their waiting lists but this was largely torpedoed by Treasury officials who insisted on the councils repaying all the attached loans so only relatively few new houses were built (and some councils chose not to use the money to build new houses, diverting it to subsidise the housing revenue account).

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