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Targets almost always end up as millstones. Andy Hornby of HBOS is the latest chief executive to discover this. The world tends to move on and, in the world of credit, it has moved extremely quickly.

HBOS shifts focus from home loans,Hornby has abandoned a target for net lending because in today’s mortgage market it’s no longer relevant. The bank already has a 20pc total share and is right to chase quality, not quantity, in a contracting market. It has the chance to boost lending margins as loans become more expensive thanks to the fallout from the credit crisis.
The UK mortgage market is now about the money you make, not the market share you take. But that also implies a slowing in the home loan market so Hornby needs to make a tactical switch and move capital to more productive areas such as its corporate lending arm run by Peter Cummings. Here, conditions are getting better for large lenders. Rates are rising and the terms they can impose improving. But the HBOS move also implies cooling house prices and thus a slowing economy which will be the longer term legacy of the credit crunch.

THE beleaguered subprime mortgage market in the UK has been dealt another blow, by an investigation claiming to have uncovered evidence of serious mis-selling.

Borrowers have been told to stretch their incomes to take out loans much bigger than they can realistically afford, according to a BBC File on 4 radio programme broadcast last night.

Half of all subprime mortgages in the UK are estimated to be self-certification loans - where borrowers state their incomes, which the lenders will not always check. This is intended to help such groups as the self-employed and those who derive some income from state benefits.

A former mortgage broker told the BBC that inflating the client’s income is seen as an easy way for some advisers to get a deal approved. And one borrower whose real income was £25,000 said he was advised to double that on his mortgage application to obtain a loan of more than eight times his salary.

A spokesman for the Financial Services Authority said: “We are determined to cut down on mortgage fraud. Based on our investigations and on information received from lenders and whistleblowers we have banned a number of brokers who have been involved in knowingly overstating the income of mortgage applicants and we will continue to crack down on this abuse.”

Industry experts in Scotland say that while there may be the occasional case of this type of mis-selling it is unlikely to be widespread.

John Postlethwaite, consultant at Punter Southall Financial Management in Edinburgh, told The Scotsman: “I would be surprised if this isn’t happening but I’ve not come across any clients who have wanted to lie about their income. Lenders should have systems in place to pick this up. They should spot if a postman is claiming to earn £100,000.”

Postlethwaite added that the problem was likely to be less pronounced in Scotland because house price inflation had not stretched affordability to the same extent as in some areas in England, especially the south-east.

David Watson, consultant at Savills Private Finance in Edinburgh, said: “I’d be very surprised if it’s happening on a big scale. As with any industry there is probably the odd ‘bad apple’ and it looks like some brokers have been encouraging borrowers to lie.

“Most of the big lenders in these fields say that arrears for their subprime mortgages are not that much greater than for their mainstream business so this would back up the fact that, in the main, people are borrowing within their means.”

But the investigation will put further pressure on subprime lenders and borrowers. This month Victoria Mortgages became the first UK subprime lender to go into administration.

THE beleaguered subprime mortgage market in the UK has been dealt another blow, by an investigation claiming to have uncovered evidence of serious mis-selling.

Borrowers have been told to stretch their incomes to take out loans much bigger than they can realistically afford, according to a BBC File on 4 radio programme broadcast last night.

Half of all subprime mortgages in the UK are estimated to be self-certification loans - where borrowers state their incomes, which the lenders will not always check. This is intended to help such groups as the self-employed and those who derive some income from state benefits.

A former mortgage broker told the BBC that inflating the client’s income is seen as an easy way for some advisers to get a deal approved. And one borrower whose real income was £25,000 said he was advised to double that on his mortgage application to obtain a loan of more than eight times his salary.

A spokesman for the Financial Services Authority said: “We are determined to cut down on mortgage fraud. Based on our investigations and on information received from lenders and whistleblowers we have banned a number of brokers who have been involved in knowingly overstating the income of mortgage applicants and we will continue to crack down on this abuse.”

Industry experts in Scotland say that while there may be the occasional case of this type of mis-selling it is unlikely to be widespread.

John Postlethwaite, consultant at Punter Southall Financial Management in Edinburgh, told The Scotsman: “I would be surprised if this isn’t happening but I’ve not come across any clients who have wanted to lie about their income. Lenders should have systems in place to pick this up. They should spot if a postman is claiming to earn £100,000.”

Postlethwaite added that the problem was likely to be less pronounced in Scotland because house price inflation had not stretched affordability to the same extent as in some areas in England, especially the south-east.

David Watson, consultant at Savills Private Finance in Edinburgh, said: “I’d be very surprised if it’s happening on a big scale. As with any industry there is probably the odd ‘bad apple’ and it looks like some brokers have been encouraging borrowers to lie.

“Most of the big lenders in these fields say that arrears for their subprime mortgages are not that much greater than for their mainstream business so this would back up the fact that, in the main, people are borrowing within their means.”

But the investigation will put further pressure on subprime lenders and borrowers. This month Victoria Mortgages became the first UK subprime lender to go into administration.

The beleaguered subprime mortgage market in the UK has been dealt another blow, by an investigation claiming to have uncovered evidence of serious mis-selling.

Borrowers have been told to stretch their incomes to take out loans much bigger than they can realistically afford, according to a BBC File on 4 radio programme broadcast last night.

Half of all subprime mortgages in the UK are estimated to be self-certification loans - where borrowers state their incomes, which the lenders will not always check. This is intended to help such groups as the self-employed and those who derive some income from state benefits.

A former mortgage broker told the BBC that inflating the client’s income is seen as an easy way for some advisers to get a deal approved. And one borrower whose real income was £25,000 said he was advised to double that on his mortgage application to obtain a loan of more than eight times his salary.

A spokesman for the Financial Services Authority said: “We are determined to cut down on mortgage fraud. Based on our investigations and on information received from lenders and whistleblowers we have banned a number of brokers who have been involved in knowingly overstating the income of mortgage applicants and we will continue to crack down on this abuse.”

Industry experts in Scotland say that while there may be the occasional case of this type of mis-selling it is unlikely to be widespread.

John Postlethwaite, consultant at Punter Southall Financial Management in Edinburgh, told The Scotsman: “I would be surprised if this isn’t happening but I’ve not come across any clients who have wanted to lie about their income. Lenders should have systems in place to pick this up. They should spot if a postman is claiming to earn £100,000.”

Postlethwaite added that the problem was likely to be less pronounced in Scotland because house price inflation had not stretched affordability to the same extent as in some areas in England, especially the south-east.

David Watson, consultant at Savills Private Finance in Edinburgh, said: “I’d be very surprised if it’s happening on a big scale. As with any industry there is probably the odd ‘bad apple’ and it looks like some brokers have been encouraging borrowers to lie.

“Most of the big lenders in these fields say that arrears for their subprime mortgages are not that much greater than for their mainstream business so this would back up the fact that, in the main, people are borrowing within their means.”

But the investigation will put further pressure on subprime lenders and borrowers. This month Victoria Mortgages became the first UK subprime lender to go into administration.

Adverse Credit, Mortgage Arrears, CCJs, No Proof of Income, Self Cert

Britain’s treasury chief says he wants new, American-style guarantees to protect savers’ money after the Bank of England’s effort to bail out Northern Rock — one of Britain’s biggest mortgage lenders — sparked panic among depositorsCustomers line up to withdraw cash from a Northern Rock branch during the height of the crisis

The announcement is the latest consequence of the crisis afflicting Northern Rock, which has reportedly seen the bank absorb £3 billion ($6 billion) in publicly funded loans and raised questions about how Britain’s banking system is managed.

Treasury chief Alistair Darling told The Times of London he was considering U.S.-style deposit insurance, which would protect customers’ money in the event of their bank’s collapse. He did not give a figure, but The Times quoted him as saying a £100,000 guarantee was a possibility.

Under current regulations, only the first £2,000 of British bank customers’ money is fully guaranteed, while the next £33,000 is guaranteed up to 90 percent. Darling told The Times those protections were inadequate.

Darling and other officials have come under fire for their handling of the crisis, which first became public on September 14 when the Bank of England announced it had made funds available to Northern Rock because the company was having trouble getting loans from other banks still smarting from the collapse of the U.S. subprime mortgage market.

Government officials tried to reassure the public that Northern Rock was still solvent, but worried customers ignored the advice and lined up at the bank’s branches to withdraw their savings as the value of the company’s shares collapsed.

Bank of England Governor Mervyn King came in for further criticism when he announced plans to inject funds into the longer-term money market, a major policy U-turn analysts said could have eased pressure on Northern Rock if made earlier.

Angry lawmakers grilled King on Thursday about why he failed to prevent a run on deposits, and the chairman of the committee investigating the crisis said Darling and other regulators would also be asked to testify.

The Financial Times said Saturday that Northern Rock has so far been forced to borrow about £3 billion in publicly funded loans. Northern Rock Chief Executive Adam Applegarth had previously said his company wanted to borrow substantial sums of money from the Bank of England, but did not say how much.

A Bank of England spokeswoman said the £3 billion figure was speculative.

“What happens is that various commentators have looked at our balance sheets and seen that it’s expanded,” the spokeswoman said, speaking on condition of anonymity in line with bank policy. “They’ve gone and made a supposition out of an expansion in the balance sheet.”

A Northern Rock spokeswoman refused to discuss the report.

“We don’t comment on corporate activity of that nature,” company spokeswoman Jemma Rundle said

Home repossessions could rocket by the end of the year as lenders of sub-prime mortgages push up their interest rates and clamp down on easy credit terms.As many as 250,000 homeowners with poor credit histories might have to pay more or risk losing their homes as the after-effects of the Northern Rock debacle and the global credit crunch forced lenders to impose new restrictions on their loans, according to mortgage brokers.

Experts said lenders were in no mood to take risks and tens of thousands of homeowners would find they could no longer afford their mortgages when their fixed-rate deals came to an end. The run-up to Christmas would be a crucial period as specialist lenders pushed their rates up and refused loans to customers with the worst credit problems.

The sub-prime sector represents around 1m (9%) of the 11.7m mortgages in the UK. Traditionally a niche market dominated by self-employed borrowers, it has grown rapidly after lenders targeted people who would find it hard to qualify for a conventional loan. These include those who have missed payments on mortgages or credit cards, had county court judgments against them, or have a small income.

Until recently lenders could borrow cheaply, and sub-prime loans were only marginally more expensive than high street mortgages. But the freeze on lending by major banks to each other has pushed up borrowing costs. The Northern Rock crisis has made the situation worse, leaving sub-prime lenders with no alternative but to withdraw their loans or dramatically increase the price.

Mortgage brokers said around a quarter of borrowers were in the “seriously adverse” catagory with more than six months’ arrears on their mortgage, unpaid utility bills and credit cards.

The Bank of England has played down warnings of a sub-prime mortgage crisis in the UK. But Ray Boulger of Britain’s largest mortgage broker, John Charcol, said: “There will be many people who will find their mortgage unaffordable. There will be others who cannot get a mortgage at all because lending criteria have changed.”

Alliance & Leicester has claimed that its new personal loan rate is the best in the UK.

Available from September 17th to November 4th, the new interest rate is 6.3 per cent and is on offer to new customers as well as existing Premier and Premier Direct customers.

Borrowers can take advantage of the rate on loans worth between £7,500 and £15,000.

“We continue to offer our customers best of breed deals across our range of products, and are constantly looking for additional ways to reward existing customer relationships,” said Richard Al-Dabbagh, senior personal loans manager at Alliance & Leicester.

He added that the bank has “consistently led the field” with its current accounts offering.

Alliance & Leicester last month launched its Premier 21 account, which is targeted at the 43 per cent of the UK’s 16 to 21-year-olds who are not heading to university this autumn.

Hundreds of customers lined up to withdraw their savings from a British mortgage bank Saturday, ignoring government assurances that their money was safe despite the bank’s request for an emergency loan.Police were called in some cities to steer panicked crowds away as Northern Rock bank branches closed for the day.

Fears have spread over the bank’s request earlier in the week for an emergency Bank of England loan amid the global credit crisis. Northern Rock, Britain’s fifth-largest mortgage lender, is the first British bank in 15 years to be bailed out by regulators.

Customers withdrew $2 billion from the bank Friday, The Financial Times reported, citing an unidentified person described as close to the situation. The bank declined to confirm the figure, which represents 4 percent of its deposit base.

Treasury chief Alistair Darling and the country’s Financial Service Authority tried to assure customers there was no doubt over Northern Rock’s solvency.

The authority “has reiterated yet again tonight that it is satisfied that Northern Rock is solvent, can carry on doing business and, crucially, paying out money if people want to withdraw their funds,” Darling said on Channel 4 TV on Saturday night.

But The Sunday Telegraph said Northern Rock was preparing itself for a sell-off. Quoting unidentified sources, the paper said one plan would divide the bank’s mortgage portfolio between other major banks in what would be a private-sector rescue of the lender.

The bank made the loan request Thursday because it relies heavily on wholesale money markets for cash, and had been unable to borrow the amounts it required from other banks since the money markets choked up last month. That was caused in part by U.S. banks making mortgage loans to Americans with poor credit histories.

Although Northern Rock requested substantial emergency funds at a penalty rate, the bank has said it had billions of pounds in cash at its disposal. It has yet to draw on any emergency funding.

Despite Darling’s message, lines stretched around the block Saturday at some of the bank’s 76 branches in Britain and the bank extended opening hours to deal with the situation.

“Yes, we are making matters worse, but I do think people need some reassurance from Northern Rock and the government and financial services that their money is safe,” account holder Jane Taylor told Sky News while waiting outside a branch in Kingston-upon-Thames, west of London.

But others said they had faith in the bank and financial authorities and watched the lines in disbelief.

“It’s mostly, in my opinion, ignorance and that’s why they’re panicking,” said another bank customer who gave only his first name, Tom. “I’m leaving mine there.”

Under Financial Services Compensation Scheme, deposits of up to $63,900 are guaranteed should a bank default.

Ron Stout, a spokesman for Northern Rock, told The Associated Press that reckless comments by some analysts about the bank’s solvency prompted customers to panic and line up outside branches or strain the company’s online banking system.

He said Northern Rock would continue to extend its banking hours, by opening one hour ahead of schedule on Monday, and to reassure customers that their investments are safe with the bank.

Northern Rock’s crisis is just the latest indication that the easy credit conditions of the past decade may have come to an end for homebuyers.

The group had ramped up its mortgage lending in recent months. For example, it was one of the pioneers of lending first-time buyers more than the value of their houses – up to 125 per cent – through its “Together” product.

Many lenders are still reliant on funding through “retail” deposits from customers but others, such as Northern Rock, depend on a functioning bond market to sell on their mortgages to institutional investors.

Halifax and Abbey have both nudged up the rates on some of their variable tracker deals by 20 basis points this week. Norwich & Peterborough Building Society has cut its maximum loan to value ratio from 100 per cent to 90 per cent.

Most experts believe that lending criteria, by Northern Rock and its peers, will become even more strict, given the prevailing mood of uncertainty. That can hardly fail to feed back into the strength of the housing market itself.

The housing boom that began in 1995, two years before Tony Blair came to power, was founded mainly on an availability of cheap debt rarely seen in previous decades. Not only were interest rates low by historic standards, hitting a trough of 3.5 per cent in 2003, but as prices rose, year in and year out, lenders began to relax their criteria as they jostled for market share. This was the era of unparalleled latitude when it came to mortgage lending.

First-time buyers were offered mortgages of up to 125 per cent loan-to-value.

Landlords were able to take out multiple buy-to-let loans where net rents did not even have to cover interest costs, in contrast to previous practice.

With house prices continuing to increase – even now they remain about 10 per cent higher than this time last year – there were few negative repercussions.

Defaults and repossessions have more than doubled since their low point in 2004 but are still way below their level during the last recession of the early 1990s.

Yet house prices are now looking more vulnerable to a correction.

A survey from the Royal Institution of Chartered Surveyors this week was the most pessimistic for two years. Property agents seeing price falls outnumbered those reporting gains by 1.8 per cent, it said.

And yesterday’s September survey from Rightmove suggested asking prices had fallen by 2.6 per cent across the country when compared with August.

Sentiment has been hit in London, in particular, by fears that end-of-year bonuses in the City will be much smaller than last year.

“Confidence is very important to the housing market, especially in central London, it has become so hot, pricing was so far ahead of itself, it was at unsustainable levels,” said Richard Donnell, head of research at Hometrack, the property information group.

“The gap between asking prices and achievable prices could be quite sizeable over the next few months.”

Northern Rock was last night considered a takeover target after it emerged that the bank had sought emergency funding from the Bank of England to bolster its balance sheet and prevent it breaching solvency rules. The bank, which has seen its value halve over the last year, was expected to be vulnerable to a predator keen to exploit its problems.The decision to seek emergency funding was also likely to trigger a collapse in confidence across the banking sector as concerns escalated over the fallout from the sub-prime lending crisis in the US and its effects on global markets.

It became famous for its mortgages with 130% loans to the value of the property that helped thousands of first-time buyers on to the property market. Borrowers would combine unsecured loans with their mortgage in order to buy a home. But the deal remained vulnerable to increases in interest rates and easy availability of credit on international money markets.

The bank is not likely to be the only one affected by the credit crunch. A report by Ernst & Young’s Item Club warns today that homeowners, the City and the high street could all feel the pinch if the problems in global credit markets start to bite.

In a report looking at the economic impact of the credit crunch, the forecasting group says around one percentage point could be knocked off UK economic growth if the turmoil worsens, bringing the rate down to 2% from 3%.

Peter Spencer, chief economic adviser to the Item Club, said the deteriorating US property market posed further risks to global growth. “The US housing sector has been weakening for some time and now faces a double-dip depression,” he said.

Financial institutions also face large losses from the fallout in the US sub-prime mortgage market. “The basic problem was that high-risk mortgages have been bundled up with corporate debt in structured debt products, causing much wider contamination,” Mr Spencer said.

“Given that the US sub-prime mortgage market is $1.5 trillion in size, a reasonable estimate of losses could be $100-150bn.”

He said the volatility stemming from the losses would also hit UK consumers.