UK negative equity estimates
A trawl of the estimates for the number of negative equity mortgages in the UK gives rise to 7 surprising observations.
1) they vary wildly;
2) there are many which have not been repeated for two years; There is a scarcity of estimates since Jun 2009.
3) they have risen very sharply from 2007;
4) a large number of prime mortgages appear to be underwater;
5) the official Bank of England figures lack credibility;
6) the Council of Mortgage Lender's figures lack credibility, and they are in a position to obtain good data,
7) those outside the industry consistently give much higher estimates than those inside the industry (of banking),
There are 11.4m mortgages in the UK according to the Council of Mortgage Lenders (CML, Dec 2010). Here is a list of estimates from 2007.
Dec 2007 Lloyds Bank - 4,000 on its own book
June 2008 Citigroup - 250,000
Oct 2008 Standard & Poors - 335,000
Jan 2009 Citigroup - 1,200,000
Feb 2009 Lloyds Bank - 500,000 on its own book (28% of market)
Feb 2009 GfK NOP survey - 3,800,000
Apr 2009 Moire survey for ITN - 3,500,000
Apr 2009 CML 900,000
Jun 2009 Bank of England (BOE) - 700,000 - 1,000,000
Jun 2009 Fitch 16% (1 in 6) of all prime mortgages
Dec 2010 BOE Quarterly Bulletin - 500,000
2010 Capital Economics - 2,000,000 (a Jun 2008 forecast)
2010 S&P - 2,000,000 (a Jun 2008 forecast)
Jan 2011 Lloyds Bank Negative equity mortgage announcement - c2,000,000 (19% of mortgages)
It is clear that the Bank of England estimates lack any credibility, their Dec 2010 estimate is laughable, in the same month that gave their estimate of 700k to 1m (around 6%-9%) Fitch estimated (by survey) that 16% of all prime mortgages were underwater, if we assume that most of the subprime was underwater already, this implies a much greater number than 6%-9%. The Council of Mortgage Lenders is likewise far too low, their estimate of 900k was preceded 2 months earlier by Lloyds announcement that 500k were on their books alone, in order for the CML to be correct the remaining 400k would have to be spread over nearly three times as many mortgages in the rest of the market, implying that Lloyds mortgages suffered three times as many negative equity situations as the rest. The implication is that mortgage lenders are comparing their loans to much higher, and very out of date, valuations, and are making no attempt to calculate them on a current valuation basis, the effect of which is to understate the figure by a very material factor.
GfK estiamte that ALL new mortgages and half of remortgages entered into after 2005 (now 6 years) are expected to be underwater. 1.3m houses were purchased in 2007 alone, not all of course with a mortgage. All in all, without any further and better particulars, I estimate that around 2m of the 11m mortgages are underwater, and it may be much higher.
1) they vary wildly;
2) there are many which have not been repeated for two years; There is a scarcity of estimates since Jun 2009.
3) they have risen very sharply from 2007;
4) a large number of prime mortgages appear to be underwater;
5) the official Bank of England figures lack credibility;
6) the Council of Mortgage Lender's figures lack credibility, and they are in a position to obtain good data,
7) those outside the industry consistently give much higher estimates than those inside the industry (of banking),
There are 11.4m mortgages in the UK according to the Council of Mortgage Lenders (CML, Dec 2010). Here is a list of estimates from 2007.
Dec 2007 Lloyds Bank - 4,000 on its own book
June 2008 Citigroup - 250,000
Oct 2008 Standard & Poors - 335,000
Jan 2009 Citigroup - 1,200,000
Feb 2009 Lloyds Bank - 500,000 on its own book (28% of market)
Feb 2009 GfK NOP survey - 3,800,000
Apr 2009 Moire survey for ITN - 3,500,000
Apr 2009 CML 900,000
Jun 2009 Bank of England (BOE) - 700,000 - 1,000,000
Jun 2009 Fitch 16% (1 in 6) of all prime mortgages
Dec 2010 BOE Quarterly Bulletin - 500,000
2010 Capital Economics - 2,000,000 (a Jun 2008 forecast)
2010 S&P - 2,000,000 (a Jun 2008 forecast)
Jan 2011 Lloyds Bank Negative equity mortgage announcement - c2,000,000 (19% of mortgages)
It is clear that the Bank of England estimates lack any credibility, their Dec 2010 estimate is laughable, in the same month that gave their estimate of 700k to 1m (around 6%-9%) Fitch estimated (by survey) that 16% of all prime mortgages were underwater, if we assume that most of the subprime was underwater already, this implies a much greater number than 6%-9%. The Council of Mortgage Lenders is likewise far too low, their estimate of 900k was preceded 2 months earlier by Lloyds announcement that 500k were on their books alone, in order for the CML to be correct the remaining 400k would have to be spread over nearly three times as many mortgages in the rest of the market, implying that Lloyds mortgages suffered three times as many negative equity situations as the rest. The implication is that mortgage lenders are comparing their loans to much higher, and very out of date, valuations, and are making no attempt to calculate them on a current valuation basis, the effect of which is to understate the figure by a very material factor.
GfK estiamte that ALL new mortgages and half of remortgages entered into after 2005 (now 6 years) are expected to be underwater. 1.3m houses were purchased in 2007 alone, not all of course with a mortgage. All in all, without any further and better particulars, I estimate that around 2m of the 11m mortgages are underwater, and it may be much higher.
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