As much as £30bn has been wiped off the value of mortgage portfolios held by UK based financial institutions in run-off books.
Research carried out by Exact Mortgage Experts shows it is more efficient for banks with mortgages in run-off to shrink these assets proactively than to hold on to them for term. Newly originated mortgages can produce yields of 6% and above whereas 2007 vintage mortgages yield considerably less, and as low as 2.5% in many cases.
Because institutions aided by the UK government manage most of these run-off assets, the British taxpayer is bearing the brunt of this inefficiency and lost revenue. Exact calculates, using widely accepted yield analysis, that the value of these portfolios is less than 80% of their face value, representing a £30bn value decline for these institutions – and by extension, the British taxpayer.
Run-off books can be shrunk quickly and cost-effectively by giving borrowers a cash allowance to encourage them to refinance their mortgage elsewhere or with more advanced techniques that are being pioneered. Some Borrowers will still be unable to refinance even with a large discount and institutions should protect the value of these mortgages by using servicing techniques to stop them going into arrears.
The findings come out of Exact’s latest White Paper – available to download free at www.exact.co.uk – which explores the impact on businesses and the wider economy of inefficient mortgage books – and examines what banks can do to maximise the value and protect the downside risks in their run-off portfolios. Exact has had considerable success in this area and many of their clients have already benefited from this proactive management approach.
Malcolm Larmouth, head of business development of Exact, said, “Everyone has had to dig deep in order to prop up the financial system. But keeping mortgages in run-off denies the taxpayer the chance of getting a return on their investment. If these organisations are split and sold off, the profitable parts of the businesses will go into the hands of the private sector while the inefficient and costly elements – such as these inefficient run-off mortgages – will remain under public ownership. The British taxpayer deserves better.”
