Mixed response to repossession halt |
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| Written by Gary Howes | |
| Monday, 01 December 2008 | |
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Politicians hail RBS repossessions move while arguments of state interference are leveled against the bank.
The Scottish Government today welcomed the news announced by RBS (LON:RBS) that it will not repossess the properties of customers who fall behind on mortgage payments for at least six months. Communities Minister Stewart Maxwell said, "any help that the banking industry can offer to those at risk of repossession must be welcomed, and I would encourage other lenders to consider this action from RBS and follow suit."The Shadow housing Minister also welcomed the news, "We strongly welcome this practical step to help prevent hard working families from having their homes repossessed. He encouraged other lenders to follow RBS’s lead and offer to delay repossessions." State interference Financial analyst Richard Northedge however expressed concern that no sooner had the government taken majority control of RBS than the first evidence of state interference became evident. Writing on his Director of Finance online blog today: "Given the time it takes courts to act, that could mean arrears of at least nine months before the bank gets its hands on its collateral. Simply adding the missed interest to the principal over that period would increase a loan by 5 per cent – which with house values falling by 15 per cent a year would plunge many of the defaulting borrowers into negative equity. Apart from appeasing the bank’s political masters it is hard to see who gains from allowing a problem to run so long. The idealistic situation is that the borrowers sort out their finances and unemployed mortgagors find new jobs but in practice, people in trouble now are likely to be in greater trouble in future. The policy risks turning a small problem into a large one - not only for the borrower but for the bank. And in practice, some borrowers will regard this as an invitation not to pay their mortgages for six months. What does RBS expect to happen after a customer has defaulted for six or nine months? Will borrowers have to make double payments for the following months until the arrears are wiped out? Or simply pay extra for the whole of the rest of the mortgage – and an extended loan period? Surely RBS, if not the government, has worked out the effect of compounding interest? The suspicion is that the £20bn of state funds just injected into the bank is to be dissipated by bad decisions on bad debts. RBS has already pledged to hold overdraft terms for companies in another piece of social engineering that may not pass financial prudency tests. Expect to see other banks forced to follow RBS, not least because of the threat of replacing voluntary codes with statutory requirements to make bad debts worse."
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