The financial system is unravelling at the moment. Northern Rock, a bank that specialises in mortgage lending, has come unstuck as it got caught between a wholesale finance market that is reviewing its attitude to risk following the sub-prime scandals in the US and its own sub-prime lending. Nobody wants to lend money to the bank any more and the Bank of England has stepped in as the lender of last resort. If the bank’s assets are really valuable then a buyer should be easy to find but it looks as though the latest property bubble market is bursting and Northern Rock’s willingness to lend up to 130% of the value of the house (sic) will leave it with a great potential for repossessions that will write off a few millions of its assets.
The Council for Mortgage Lenders has some interesting stats on repossession trends and lending standards that look alarming to me.
If 0.2% of mortgages are repossessed each year and an average mortgage lasts for 10 years then I calculate that we have a 2% chance of any given mortgage being repossessed.
If I have 50 friends then what chance do I have of knowing someone who has been repossessed?
If a lot of people know someone that has been repossessed then what confidence is there in the market about prices?
Another interesting structure! There is no triangulation on the front or side elevations.
