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Countrywide offers lenders low LTV business to offset high-risk lending

Countrywide is trying to tempt lenders into offering high LTV new-build mortgages by offering to put more lower LTV business their way, in a bid to mitigate risk.

Capital requirements on 90% LTV deals can be up to eight times higher than those on low LTV deals meaning lenders are reluctant to lend.

Speaking at a Mortgage Strategy roundtable this week Nigel Stockton, financial services director of Countrywide, says low LTVs are the biggest issue facing the market and this is a way to unlock them safely.

He believes his proposal would give lenders the balanced portfolio they desire and prevent over-exposure to risk.

He says: “I accept that capital is the scarcest resource that banks have so I’ve made offers to banks because I want 90% LTV in the new-build sector.

“In exchange for that mortgage I will offer exactly the same amount of money on a remortgage under 50% LTV to mitigate the risk and build the balanced portfolio lenders are looking for.”

Stockton says he has put the proposal to a number of lenders but the reception it has received has been interesting.

He says: “If I’m offering up more assets at lower risk, say at 2:1 or whatever the ratio to the higher risk assets, then how is that not a good deal for the lender if risk is the key metric?

“Let’s say I want £200m of high LTV lending then I will give you £400m of low LTV remortgage business to mitigate the risk.

“The deposit is stopping new-build and the market moving forward as borrowers can not afford 20% deposit on flats at a flat value of £150,000 and £200,000.”

Adrian MacDiarmid, head of mortgage lender relations at Barratt Developments, agrees and says the problem is that currently top-up loans and shared equity are the only solution to low LTVs.

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  • Andrew Carter 30th September 2011 at 5:31 pm

    Great Idea Mark C, I think I’ll take copies and give it out to all my Estate Agent introducers. That should make selling against Bairstow Eves a little easier.

    Thanks Stockton.

  • Mark C 28th September 2011 at 2:14 pm

    I think the banks are perfectly capable of balancing their own portfolios. Great article though, should show it to every client thinking of going to Countrywide. They obviously think they own the client and his equity.

  • seagull 28th September 2011 at 12:21 pm

    What a fool, this is same guy who gave us the rubbish about “what he would do if chancellor for a day” he actually makes recent Chancellors look like they know what they are doing.
    It’s frightening that hundreds of people answer to and rely for their jobs on idiots like this.
    Likes sound of his own voice too much and considers what he’s saying too little, if his actions are anything like his words then there could be a huge can of worms waiting to be opened @ Countrywide.
    I suggest he isn’t given a voice by Mortgage Strategy ever again.
    I’m sure I remember an interview where he thought England would win World Cup in his lifetime as well, that should have said it all about never asking him to give his opinion ever again!

  • The cat with the hat 27th September 2011 at 3:42 pm

    Mmmmm, 90% new build Mmmmmm…where do i sign?

    A very nieve understanding of capital requirements and risk in general – this harks back to the ‘good’ old days when i started in lending of brokers saying “if i give you three good cases you have to accept a bad one” – Err, no i don’t

  • Luke Atkinson 27th September 2011 at 11:13 am

    I’d be interested to hear Nigel’s response to our points, I’m still surprised that someone with so much experience and who is clearly well respected within the industry could make such a silly suggestion.

    In fact, I’d be even more interested to hear the lenders’ response. I imagine it would have consisted of two words, one of them being ”off”.

  • simonb 27th September 2011 at 10:17 am

    it seems fairly obvious how this will work – as they work with a limited panel of lenders they can easily steer a chunk of their business towards a particular lender, don’t forget they probably have a sourcing system that is ‘panel only’ lenders so won’t be too much trouble showing a client of list of deals with the particular deal sitting pretty at the top…
    that’s not to say i agree with it !!

  • Harry Moore IFA 27th September 2011 at 10:05 am

    roll on MMR…..

  • john 27th September 2011 at 9:34 am

    Nigel Stockton – the gas bag rides again.

    I’m more surprised that these papers even the garbage this man spouts.

  • annonymous 27th September 2011 at 8:52 am

    How can an estate agent control where its mortgage buisness goes, surely TCF says they recommend the right product to the right person – I hope the FSA aren’t reading this and thinking that countrywide are acting intheir own best interest to shift houses from their shop window. There appears to be too much cosyness between lender and distributor -what happened to good old advice?

  • anonymous 26th September 2011 at 9:23 pm

    To anonymous at 3.39pm

    It makes no odds if it is one or more lender; the idea of quotas naturally gives rise to bias risks. Does Countrywide actually have a risk management department? Thought not; therefore the idea will have disasterous consequences. Thought Stockton would have known better with his background.

  • Andrew Carter 26th September 2011 at 7:57 pm

    Anonymous | 26 Sep 2011 3:39 pm

    This brings me back to my last question. If clients are going to be ‘placed with the most appropriate lender according to their needs’ surely that means that there is no need for the lenders to offer excessively high risk loans, as they will get the low risk loans anyway.

    If the lenders want low ltv business they price that business competitively, or they offer flexibility on their loans at that ltv. They then have no need for high risk ‘bribes’ to the brokers that bring in the low risk business.

    I just cannot see any way that Countrywide can give lenders business that they would have got anyway and then expect something in return. If they are putting the business somewhere else to where it would have gone then I can’t see how it can be Treating Customers Fairly.

    Sadly I think the builders that ramped up the incentives (many of which were never disclosed to the lenders nor the purchasers) have caused this lack if appetite to lend on their properties. They only have themselves to blame.

  • Luke Atkinson 26th September 2011 at 5:17 pm

    But this would never work for the reasons outlined above, what a completely unrealistic suggestion to make.

    Surely the reasons why lenders are uneasy about lending on new builds is well documentated.

    And I’m certain that the Lloyds banking group changed their criteria on new builds when Stockton was head of intermediary lending at the bank? Yet now he works for an intermediary the boot is on the other foot, you couldn’t make this up.

  • anon 26th September 2011 at 4:29 pm

    To anonymous posted at 3.39pm.

    It makes no odds whether there is one or more lender. Having any form of quota is risky and could prejudice the advice. Countrywide also does not have a risk management department so this idea is a disaster in the making.

  • J C 26th September 2011 at 3:48 pm

    This man is obviously thick as a Fridge door. Evey time he opens his mouth all we get is pathetic, immature speeches about how to make things better. He should have tried that before Lloyds/HBOS bumped him

  • S 26th September 2011 at 3:39 pm

    There seems to be an obvious point that the comments so far have seemed to have missed, that is, not all the high LTV funding would come from one lender and therefore not all the low LTV business would have to be placed with one lender either. Therefore I suspect clients would be placed with the most appropriate lender according to their needs. At least Countrywide are trying to influence the market and get more funding available which is more than most are doing for us!

  • Andrew Carter 26th September 2011 at 3:38 pm

    I agree with John. I’d love to see the Suitability Letter for the chap that has provided the capital requirements for the 90% ltv purchase.

    What is to prevent the 50% deal leaving the books and the lender being stuck with a 90% advance on a new build which is almost certainly going to have been over valued to fund the incentives, many of which have not been disclosed to the lender in the past?

    One last question: If the 50% customer is going to be given the best independent advice, is the lender not going to get it anyway? Are we saying that one bank can charge more for 50% loans and still get them if they offer a 90% deal to another client?

    I’m, frankly, staggered that anyone would be stupid enough to put their name to this proposal, and I’d advise anyone that has a large deposit to avoid talking to Countrywide!

  • anonymous 26th September 2011 at 3:32 pm

    A great idea but would be hard if not impossible to implement in whole of market surely; so the only way to justify it to lenders is to offer limited panel advice meaning that it can be “managed” to some extent but that same limited panel advice to borrowers would mean that they get “a mortgage” but not possibly the best advice or product for their needs? An interesting idea but ultimately flawed

  • steve 26th September 2011 at 3:15 pm

    Idea of balanced portfolio is fine in principle. The practical challenge is to evidence that the low ltv customer is placed with the lender based on what is best for them. There is inherent risk that such a model opens the door to customers mortgages being placed on a compromised basis and having ran a mortgage product development unit in the past I would expect a lot of challenge from compliance as I need to evidence that mt product design is TCF and what we are actually talking about here is cross subsidisation by the low LTV customer. I would tread very carefully.

  • Liam Tresilian 26th September 2011 at 3:15 pm

    So, there is no element of choice for the client then Nigel? Sounds about right for Countrywide then….

  • anonymous 26th September 2011 at 3:13 pm

    Stockton,

    The net result will be a lender that has a £200m exposure to high LTV business it would not otherwise have had, which is a significant risk if there is a double dip recession or property prices fall otherwise.

    I also wonder where you will get £400m of low LTV buisiness from and the implications if you cannot – will the advice be unbiased?

    Think on.

  • JOHN 26th September 2011 at 3:05 pm

    So, you do 1 case at 200k on 90%, then Nigel has to send the same lender a £400k case at 50% – how can he justify that the lender is the most suitable for the 50% client?????

  • JOHN 26th September 2011 at 3:04 pm

    So, you do 1 case at 200k on 90%, then Nigel has to send the same lender a 200k case at 50% – how can he justify that the lender is the most suitable for the 50% client?????