S&P Report: Improved Lending Standards Make Sense

Here’s the answer to the question about why financial institutions are using tougher standards to evaluate the creditworthiness of potential borrowers.   As this Financial Times article points out, ”Homeowners with little equity are more than twice as likely to fall behind on mortgage payments than those who put down at least a quarter of the purchase price.”

The report, from Standard & Poor’s, the credit rating agency, found that while 3.2 per cent of homeowners who put down 20-30 per cent of their mortgages were in arrears on repayments, the rate of arrears for those who put down 10 per cent or less was more than twice that level, at 7.1 per cent.

Among those whose loans were 110 per cent or more of the property value, arrears rates were 28 per cent. The findings were part of a larger report based on loan-level analysis of £150bn of residential mortgage-backed securities (RMBS) created by the nation’s nine largest home lenders.

Read the full article: “Mortgage arrears linked to low deposits.”

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