100 Percent Right to buy loans are just crazy.
Posted on April 13th 2009
Mortgage Strategy: Alan Cleary’s column.
Managing Director
Dundee Council looks like the first local authority to take the plunge into mortgage lending. And taking the plunge is an under-statement if ever I saw one. Their proposal to lend 100% of the cost of the house purchase to tenants looking to buy their council houses is bonkers!
As far back as 10 years ago the lender I was working for had identified and proven that this type of borrower carries a level of risk that is simply not economic to contemplate. Given that this whole market has been driven to the point of despair by a massive under estimation of mortgage risk in the US and to a lesser extent in the UK this revelation shows that local authorities should call in the mortgage experts to deal with lending decisions.
The result of this decision, if it goes ahead, is that the UK taxpayer will end up underwriting risks that no high street bank would contemplate and if there were any lenders in the specialist sector they wouldn’t lend on them either.
The fact is that RTB mortgages generally do not work because the potential borrower cannot afford the repayments in the long term; affordability might look Okay with rates at today’s levels but disaster looms when rates go back to their historic average levels in 12-18 months time. My message to Dundee Council is to give me a call and I will point out a number of people who can help make the correct decision.
