The Mortgage Mess in the UK

October 28, 2008 No Comments »

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As we all know, the ongoing credit crisis is a global one, further evidenced by a couple of reports released today by the Bank of England and the Financial Services Authority.

The semi-annual Financial Stability Report issued by the BoE details the effects of the credit crunch taking place in the United Kingdom, events that largely mirror those happening in the United States.

In the UK, home prices have fallen 13 percent from their peak in October 2007, a faster rate of decline than that seen here in the US, and things are expected to get worse before they get better.

With many recent mortgages originated with high loan-to-value ratios, roughly 1.2 million, or one in nine homeowners, are at risk of negative equity, compared to an estimated 12 million here in the states.

UK commercial property prices have also declined by 24 percent since their June 2007 peak, fueling defaults, negative equity, and potential commercial property business implosions.

Mark-to-market losses on mortgage-backed securities and other credit instruments have nearly doubled between the April report and today’s report, rising to around $2.8 trillion for the US, UK, and Eurozone combined.

Meanwhile, lending activity has dropped precipitously, with approvals reaching their lowest level on record in August, with no signs of credit easing, especially with massive collapses like Northern Rock.

In a separate report released today by the Financial Services Authority, the number of homes repossessed by mortgage lenders in the second quarter (11,054) increased 71 percent compared to a year earlier.

The FSA also noted that the number of borrowers three months or more behind on their mortgage payments increased 16 percent from a year ago, with 312,000 additional homeowners becoming delinquent during the second quarter.

So don’t feel so bad America…

(photo: e01)

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