Up to £30bn wiped off value of mortgage portfolios, says Exact
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As much as £30bn has been wiped off the value of mortgage portfolios held by UK based financial institutions in run-off books, says Exact.
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.
It estimates over £150bn of the UK’s mortgage assets are currently held in run-off books, representing 12% of a market worth £1.2trillion.
It says 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.
Exact calculates, 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.
It uses two hypothetical £100m mortgage portfolios at 100% LTV from Northern Rock as an example.
The first book is paying 4.79% which is the bank’s SVR variable rate. The second book is paying 6% new business rate.
Its analysis shows the back-book is worth only 79.83p in the pound based on bond market pricing and this is seen as a paper loss for most institutions. These are paper losses because they are not usually recorded for mortgages that are intended to be held to maturity.
The findings come out of Exact’s latest White Paper 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.
Malcolm Larmouth, head of business development of Exact, says: “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.”
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