Where’s HBOS?

Looking through old e-mails, I read an article from the FT in 2006 that surfaced claiming that HBOS (Halifax Bank of Scotland)were poised and ready to go offer loans for 125% of value. That’s right, HBOS thought it a good idea to cover 95% of the house price and loan another 30% over appraised value unsecured as a personal loan.

Now that the UK has joined the housing bust, one must ask where are the massive writedowns that have to be sitting on HBOS’ books? Why aren’t they looking to do another rights issue like RBS? I fully expect some pretty horrific things coming from HBOS as the housing crisis heats up in Britain.

The article touting this product when it was released goes like this:

HBOS to offer new mortgage at 125% of value

By Sharlene Goff

Published: November 3 2006 22:10 | Last updated: November 3 2006 22:10

HBOS, the UK’s biggest lender, is to start offering mortgages that allow people to borrow more than the value of their property, in a move that will make such products more accessible.

The owner of Halifax building society and BM Solutions, the specialist mortgage lender, is likely to launch a product within days that could allow buyers to borrow up to about 125 per cent of the value of their home.

The move coincides with accelerating demand for higher loans as cash-strapped first-time buyers go to extreme lengths to get a foot on the housing ladder.

Mortgage brokers have seen the take up of mortgages that provide more than 100 per cent of the property value rise by as much as 70 per cent this year.

Demand is being driven by graduates and young professionals who find they cannot save quickly enough for cash deposits and moving costs.

Some borrowers are also using the additional funds to pay down other debts such as personal loans and credit cards, as mortgage interest rates are typically cheaper.

The move by HBOS is seen as good news for borrowers as it is likely to bring down the current relatively high interest rates on these types of loans.

But brokers warn that borrowers will be plunged immediately into negative equity and could be trapped in their properties unless prices rise.

Ray Boulger, senior technical manager at broker John Charcol, said: “HBOS has the firepower to be quite aggressive in terms of pricing.”

The lender is likely to put significant pressure on Northern Rock, which currently has a monopoly in this market.

HBOS’s offering is expected to be similar to Northern Rock’s “Together” mortgage, which allows people to borrow up to 125 per cent of the property value.

Together is understood to bring in about £8bn of new business each year.

HBOS on Friday refused to comment.

Well, HBOS finally showed some sense. Two months ago, these ridiculous products were taken off the market. The Independent reported in February:

The 125 per cent mortgage was rendered extinct yesterday as the final lender withdrew from the market. Birmingham Midshires, owned by the Halifax, became the sixth mortgage lender this week to stop offering loans worth more than the value of a property, amid increasing nervousness from banks and building societies about defaulters and the spectre of negative equity.

The 125 per cent deal, typically structured as a 95 per cent mortgage with a 30 per cent unsecured loan on top, proved popular with first-time buyers. But the credit crunch has raised the cost of lending and mortgage providers are increasingly risk-averse.

Indeed!

UPDATE: The New York Times filed a report at 6:44AM EST on 27 Apr that HBOS is indeed thinking of a rights issue because they have credit losses. I anticipate some serious issues will be addressed there as the mortgage crisis takes hold in the UK.

See also: Credit Crisis Timeline for a full list of writedowns by institution and a timeline of the credit crunch.