Here’s this week’s Star Letter:
TMPE2014: Barclays – ignoring pensions ‘not prudent lending’
Arron – Temple Capital
It seems Calder is not looking at the wider profile of clients and focusing on the monthly outgoings in the here and now, which is way too narrow a method to assess future mortgage affordability.
For example, if you consider a client with a pension provision, regular savings and life assurance and income protection cover against a client with no safeguards in place at all, who would represent the better profile for lending?
The first security of a loan is not the property but the borrower and most importantly their willingness to pay. When working for the Woolwich and undertaking arrears interviews in the early 90s, almost all borrowers I spoke to were able to pay their mortgages, but would not do so. They prioritised their lifestyles, new car, Sky TV, cigarettes, etc. over maintaining their homes.
These people had often been keeping up with the Joneses and just trying to ensure their children had a better lifestyle than their own, but failed to realise that the loss of their home would undo it all. They needed to mend the roof when it was sunny and not when it began to rain.
It should also be noted that Woolwich assesses cases at a sensitised rate of 6.99% that may never be reached, so surely it is better clients are paying in to pensions while they can and then be in a position to reduce payments if 6.99% is ever reached and presumably when they will have had a few more pay rises and the loan will be reduced.
Accordingly, I hold a counter view to Calder and that the best clients to lend more to are those with long term provisions and protection as they have already adjusted their lifestyle to be financially prudent. Conversely, the “you only live once” demographic (YOLOs) represent the worst risk.
You can read more of this week’s best reader comments in our Star Letter Extra column HERE.
