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Lloyds group has greatest exposure to high LTV mortgages

Lloyds Banking Group has the highest proportion of mortgages at an LTV deemed to be high or very high by the Bank of England, research by the Bank shows.

The Bank’s latest Financial Stability Report reveals 60% of Lloyds group’s mortgage book is at a high or very high LTV, 32% of which is at a high LTV.

A very high LTV is defined as one over 90%, and a high ratio is defined as one between 70% and 90%, except for Barclays and Santander UK, which is between 75% and 90%.

Lloyds group’s proportion of high LTV mortgages is almost twice that of the other high street banks.

27% of Royal Bank of Scotland’s mortgage book is at a high LTV, and a further 12% is very high.

Santander has the next highest proportion, with 22% at a high LTV and a further 11% at a very high LTV.

Nationwide had 21% at a high LTV and a further 7% deemed very high, while Barclays had 15% at a high LTV and a further 6% at a very high LTV.

HSBC had just 8% at a high LTV and no data was available for very high LTVs.

The Bank of England report says that the proportion of unsecured debt held by vulnerable households is relatively high and rising.

But it says that the significant variation in the proportion of high LTV borrowers across banks as shown by the figures suggests that exposures to vulnerable households are likely to be concentrated in a few banks.

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  • Daniel 28th June 2011 at 12:14 pm

    What an utterly ridiculous ‘theory’ from George. You may have thrown in some calculations and capital letters, but it doesn’t make your assertions any less flawed. If someone can’t afford the mortgage after they’ve taken out a personal loan to cover their deposit, they won’t be lent the money – it’s not ignored.

    LTV is a massive factor for lenders and all the risk lies within higher LTV lending. George needs to get his head around some basic concepts of risk, before he starts writing paragraphs of misinformation (the wont of many an internet user).

  • peter stimson 28th June 2011 at 8:41 am

    Sorry George but you are way off the mark. The biggest predictor of default (perhaps aside from those with very poor credit)is LTV.

    Lending is about a very simply equation. Default probability X loss severity. High LTV lending increases both.

    Yes other aspects matter but not to the same extent. When people have ‘skin in the game’ they tend to pay, when they don’t, they don’t. A generalisation but also a truism

  • Ian Britton 27th June 2011 at 11:21 am

    There is a major flaw in the exercise that George has shown us and that is it is common sense. As my wife told me a good many years ago and it still holds true today, the trouble with common sense is that it never costs enough money!

  • George Williamson 27th June 2011 at 10:33 am

    The current UK Banking crisis (it was different in the USA) was caused as a result of WHOLESALE FUNDING problems & not RETAIL LENDING. Comments on High LTV Lending being risky is to not understand this basic fundamental fact. Indeed high LTV mortgages can be much less risky than other mortgages.

    The WHOLESALE MARKETS tend to use “Loan to Value” (LTV) as an indication of risk, but if they had used the correct assessment of “Affordability” then we would not be in this mess. While doing my Banking Exams 20 years ago, we were taught to assess the Affordability and to never ever lend purely against security. If you need to take security to make the lend viable, then do not lend. Security can be taken to reduce default risk & reduce cost, but never to substitute a proper assessment of affordability. That is good old fashioned (Captain Mongering) banking.

    An example :- (1) Property Valuation = £1,000,000
    Mortgage = £100,000
    Income = £10,000
    Loan-to-Value(LTV)= 10%
    Income Multiplier = 10 times

    (2) Property Valuation = £100,000
    Mortgage = £100,000
    Income = £100,000
    Loan-to-Value(LTV)= 100%
    Income Multiplier = 1 times

    Which is the more affordable lend? It is Number (2) which is also the 100% Lending.

    Its AFFORDABILITY not LTV that matters.

    Until the credit crunch, we have never not had 100% mortgages available (in Scotland) in the last 20 years. Just about all my clients (including myself) started out this way. If you ban high LTV mortgages you will have to change Government policy to scrap Student Loans & reintroduce Student Grants or we will have no First Time Buyers for a decade. Why :-

    Students leave University with so much debt, it will take them circa 10 years to repay this debt & save a deposit. If you suggest they do not repay the student debt, but just save a 5% deposit and take a 95% mortgage, then please be aware that payments on 95% Mortgage + 5% Personal Loan are LESS affordable than a 100% mortgage, thus INCREASING the risk of mortgage default.

    AFFORDABILITY, AFFORDABILITY AFFORDABILTY (get the hint).