Mortgage rates will shoot up for high LTV mortgages

Brendan Burgess

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Here is a summary of the lending in 2013

LTV ratio|% of loans
Over 90%|11%
85% -90%|21%
80% -85%|8%
< 80%|60%
40% of loans were in excess of the 80% limit. So the 15% exemption will not cater for many of them.

As house prices have risen in the meantime, it's likely that the demand for mortgages over 80% will far exceed the supply available. What happens when demand exceeds supply? The price rises. Or we might go back to the mortgage rationing we had in the 70s. Where you apply for a high LTV loan, and you are told to wait a year or two.

People will be so glad to get a mortgage that they won't care if they are paying 6% or 7% for it.

As the high LTV mortgages will be extremely profitable, the banks will need to sell a lot of new low LTV loans. So the rates for this business will probably fall.
 
Potentially. However I think that this will be an unlikely occurance. The new LTV limits are being imposed by the CB. banks are allowed to exceed the limits by 15%. The implication of the CB edict is that the 15% exceptions will not be "higher risk" loans but will be based on exceptions where specific risk analysis justifies an exception to standard policy. Charging a premium for these loans would indicate that they are higher risk and would therefore be a signal to the CB that this loophole should be sealed off. I don't see any Bank taking this approach!
 
Hi brendan

OK, so you arguing that there won't be excess demand for loans in excess of 80%. An interesting view. Maybe.

However, the lenders are already charging customers around 2% more than the average in the Eurozone, because they can. And this is encouraged by the Central Bank. So I expect them to milk the new regulations to enhance their profitability.

I hope I am wrong and that you are right.

Brendan
 
OK, so you arguing that there won't be excess demand for loans in excess of 80%. An interesting view. Maybe.
No there will be plenty of demand for these exceptions but my point is that this will be tempered by the Banks and only a small number of exceptions will be approved. Mortgage rates must be advertised openly and it would not be seen as "good practise" prudentially to promote a specific rate for a >80% LTV product that in reality should not be encouraged!
 
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