Comments: Insolvencies drop, repossessions rise

I think the explanation for the drop in the number of IVAs is partially due to the fact that the Banks have taken a view that they may have been too quick to grant these in the past, and that they're losing a lot of revenue on them. So that explains some of the drop, and I would expect the people affected to then show up in the insolvency stats to some degree several months further on down the line, as everything finally gets too much of them (although you'll obviously still get the odd handful who manage to pull themselves out of the hole). I think the Banks have realised they were giving a lot of IVAs out to people who shouldn't really have been candidates in the first place.

Posted by minh at August 3, 2007 10:25 AM

Hi David,

To quote your article:

"...The CML's wider sample now includes more UK sub-prime lending, where the repossession problem is thought to be concentrated..."

Forgive me for asking, but do we have a Sub Prime mortgage industry then? I thought the CML told us we didn't!


Posted by Pete Balchin, Solicitor at August 3, 2007 11:08 AM

We have a sub-prime mortgage industry, it's just not as big as in the US.

"Merrill Lynch has estimated that [the UK sub-prime mortgage industry] was worth 25bn to 30bn in 2005, but the Council of Mortgage Lending puts the figure at a much smaller 15bn to 16bn, only 5 to 6 per cent of total lending. That compares with $830bn - about 10 per cent - in the US. Moreover, about half of UK sub-prime borrowers are classed as "low adverse" - that is, they do not have a history of significant payment problems."


Posted by Ed B at August 3, 2007 11:41 AM

Thanks Ed,

Looks as if there won't be the problem there was in the states then.

Posted by Pete Balchin, Solicitor at August 3, 2007 06:09 PM

It looks as if American Home Investment Mortgage Co. have gone under then!

I wonder when one of our boys will go under? I know that HBOS and RBS have been posting ever worse figures, but I don't suppose it will be one the size of them will it now?

Then again nobody supposed Barings would go under did they? And a similar problem existed there, namely lack of supervision didn't it?

What was it that Mervyn King said about not knowing what the extent of these hedge funds liabilities were or whether they had the security for the operations?

Are they by chance linked to the sub prime market?

Posted by Pete Balchin, Solicitor at August 3, 2007 09:17 PM

The amazing thing about the repossession figures is that this is occurring at the same time that house prices are appreciating at a double digit rate. You would think that home owners facing problems would just sell the property rather than face repossession. What is going to happen to repossession numbers when house price inflation either: a) falls back to mid single digits, or b) the Bank of England raises the base rate another percentage point in order to bring house price inflation back to the mid single digits? One of the lessons from the subprime debacle in the US is that rising house prices can hide quite a few financial sins. It will be interesting to see what comes up when the lights are turned on in the UK.

Posted by RichB at August 3, 2007 10:17 PM

I am not so sure about the continuing theme of House Price Inflation though. In London there was , in the provinces less likely. In the North, mainly reductions.

An Estate Agent told a taxi driver that I talked to the other day that some of them are selling to each other at the moment to keep prices high and to keep the volume through. Is this true ? I am naturally as per my buisness, sceptical..... Any way here are the comments on Bloomberg about our unfortunate friends over the pond, American Home Mortgage Investment Corp.:

"... American Home would become the second-biggest U.S. mortgage lender to seek bankruptcy protection this year and the biggest that caters to people with good credit....At least 11 other mortgage companies have declared bankruptcy in the past year, most of them because of losses on so-called subprime loans..."

I do hope the CML were right when they said we ddin't have a sub prime industry over here, but looking at Northern Rock and Abbey etc... And of course, this co. is not sub prime so I understand which means the problem is spreading, though I trust only over there...

Posted by Pete Balchin, Solicitor at August 4, 2007 12:54 AM

Referring to Pete's posting.
Wasn't it Warren Buffet who said "you only find out who is not wearing any swimming shorts when the tide goes out" or words to that effect ... ?


Posted by Nick Thorne at August 4, 2007 10:04 PM

Although our 'sub-prime' market does not on the face of it appear as large as the US in value, do remember that we have less than a quarter of the population of the US and with the difference in relative house values between averages here, and averages there, also the currency exchange, it's still massive. The problem appears to be that the US lending criteria suggests a broader range of consumers fill the sub-prime market, including 100% LTV, First time buyers and self certification, whereas in the UK these are not necessarily sub-prime as this term only refers to those borrowers with credit problems. According to an ABM Amro report of April this year, the more significant risk in the UK market is that properties are about 30-40% overvalued whereas in the States it was more like 25%, so their landing isn't going to be as harsh as ours if we have a housing crash.

Posted by Alex moore at October 12, 2007 09:28 AM