Wednesday, 26 April 2017

Inside edge

All posts from: February 2009

Housing hell

Fri, 27 Feb 2009

If any bank has mattered to housing it is HBOS. So today’s news that it lost £10.8bn last year is grim news for homeowners, housing associations and house builders in particular as well as taxpayers and the economy in general.

Before being taken over by Lloyds and then, more or less, by us, Halifax Bank of Scotland was the largest mortgage lender with 20% of the market. It was one of the major lenders to housing associations - combined with Lloyds it is the biggest. And, thanks to a spectacularly ill-advised strategy, it built on its lending to house builders by taking stakes in five of the top 20 companies at the top of the market. 

Its accounts show that it made losses of £950m from ‘associates and jointly controlled entities’. This was ‘due to the rapid deterioration in trading performance across the house building and property sectors and falls in the value of investment properties’. 

It also made a provision of £1.05bn on lending and investment in the house building sector.

As if this was not bad enough, the problems piled up in its mortgage book too. The proportion of its mortgages with an indexed loan to value of more than 100% - borrowers in negative equity - rose from just 0.1% in 2007 to a staggering 16.8% in 2008. 

That’s about the same as house prices fell over the year according to the Halifax house price index but there must also have been significant lending at 100% or more to explain such an increase. 

If that 16.8% were repeated across the market it would mean that 1.4m borrowers are already in negative equity. A survey by out today says that could rise to 5m. Anything like that amount will damage the banks still further.

About the only good news that can be derived from HBOS’s accounts is that there is no bad news about housing associations. The merger of Lloyds and HBOS created the largest lender to the social housing sector with £13bn of loans. Associations may not be responsible for HBOS’s housing hell but they will still feel the impact.

Housing hell

Fri, 27 Feb 2009

If any bank has mattered to housing it is HBOS. So today’s news that it lost £10.8bn last year is grim news for homeowners, housing associations and house builders in particular as well as taxpayers and the economy in general.

Before being taken over by Lloyds and then, more or less, by us, Halifax Bank of Scotland was the largest mortgage lender with 20% of the market. It was one of the major lenders to housing associations - combined with Lloyds it is the biggest. And, thanks to a spectacularly ill-advised strategy, it built on its lending to house builders by taking stakes in five of the top 20 companies at the top of the market. 

Its accounts show that it made losses of £950m from ‘associates and jointly controlled entities’. This was ‘due to the rapid deterioration in trading performance across the house building and property sectors and falls in the value of investment properties’. 

It also made a provision of £1.05bn on lending and investment in the house building sector.

As if this was not bad enough, the problems piled up in its mortgage book too. The proportion of its mortgages with an indexed loan to value of more than 100% - borrowers in negative equity - rose from just 0.1% in 2007 to a staggering 16.8% in 2008. 

That’s about the same as house prices fell over the year according to the Halifax house price index but there must also have been significant lending at 100% or more to explain such an increase. 

If that 16.8% were repeated across the market it would mean that 1.4m borrowers are already in negative equity. A survey by out today says that could rise to 5m. Anything like that amount will damage the banks still further.

About the only good news that can be derived from HBOS’s accounts is that there is no bad news about housing associations. The merger of Lloyds and HBOS created the largest lender to the social housing sector with £13bn of loans. Associations may not be responsible for HBOS’s housing hell but they will still feel the impact.

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