The Bank of Portugal announced macroprudential guidelines last week that would cap LTV ratios
at 90% when granting new loans secured on owner-occupied properties.
The ratings agency said that lenders often mask their mortgage books' risks by using loopholes in the way they work out average LTV ratios
. The agency cited differences in the system used by Lloyds Bank and Santander to the system used by Nationwide, HSBC, RBS and Barclays.
Particularly the LTV ratios
(ratio between loan amount and collateral value) are very important in this business.
The researchers estimate differences in interest rates and mortgage origination volumes in the conforming and non-conforming mortgage markets (including both "jumbo" mortgages that exceed conforming loan limits and other non-conforming loans that have over 80 percent LTV ratios
) during Federal Reserve market interventions from 2008 through 2014.
In line with the improvement in RAM's assumed stressed refinancing rate of 8.5 per cent (from 10.0 per cent), the stressed DSCRs have increased substantially, albeit constrained by their respective LTV ratios
. The ratings are also underpinned by structural features that enhance the liquidity and security of the transactions, e.g.
This increase reflects the gradual worsening of metrics such as Fitch stressed LTV ratios
, percentage of IO loans and subordinate debt--"the result of increased competition amongst lenders and greater confidence in the economy," MacNeill said.
Each borrower is only entitled to seek a loan for one property falling within these two categories and therefore it would appear that these LTV ratios
are intended for owner occupiers.
In some cases, these recent LTV ratios
are well below the LTV ratios
of maturing loans, which raises the question of whether maturing loans can be refinanced in today's more restrictive lending environment without requiring additional equity.
Increasing LTV ratios
to unrealistic and unreachable levels will ultimately convince first-time buyers to buy elsewhere, perhaps in their domestic markets.
"Normally LTV ratios
are decided by lenders taking account of current and prospective interest rates, the risk characteristics of the borrower, the riskiness of the asset being offered as collateral, their own balance sheet and liquidity in addition to the prospects for the economy over the period in which they expect to have the exposure," Dr Nasser Saidi, former chief economist at the Dubai International Financial Centre, told this scribe.
"Originators tend to limit LTV ratios
at high interest rates.
A spokesman for the Council of Mortgage Lenders (CML) said that while the 18-month funding for lending scheme is still in its early stages, it is "encouraging" to see product ranges increase across LTV ratios