Property Investing

Hey Guys,

You may remember – like me – the nationalisation of Northern Rock. It was a big scandal at the time that resulted in a lot of speculation over whether or not peoples mortgages would remain safe. Well, the core reason they had to be bailed out was due to their reputation for offering mortgages of up to 125% of the properties value. Once in place too many homeowners were unable to afford the monthly repayments, resulting in the bank being nationalised.

Now I personally have nothing against the bank. After all, don’t we all as investors strive to invest in properties using no money down deals? It is the dream deal for a property investor, and not one we would shun if we could get it. But the thing with Northern Rock was that they were reckless in their lending, and by the sounds of the National Audit Offices report they still haven’t learnt their lesson.

6 months on, Northern Rock have been found to still be lending this 125% LTV mortgage.

Yes, the terms of this loan have been restricted but this loan accounts for 50% of their arrears and 75% of their repossessions. So here is my question – is this a mistake by Northern Rock? For a first time buyer struggling to get on the property ladder, this is the perfect deal as it frees them from the obligation of having to find a deposit. But on the other hand, if they are not thorough enough in their credit checks to make sure that homeowners are able to afford these loans for the long term, then it could be damaging for the bank.

I don’t mean for this to sound like a rant, but consider this for the moment. Are not banks restricting the number of mortgage loans they will offer due to people not being able afford their monthly repayments?

It’s an endless cycle. You could argue that the public needs these kind of mortgages, but then you could say that due to the number of people who take out these loans yet cannot pay them, they have contributed to the restricting of mortgages?

Okay, okay I know this is a broad assumption but I think you get my point. So I am putting the question out to you – were Northern Rock wrong to keep on offering these 125% LTV mortgages in the current financial climate?

I would really appreciate your opinion on this.

Speak soon.

Wendy xx