Advisor who saw the onset of the subprime mortgage crisis in the UK talks about risks to the New Zealand market
Liam Thomas was working in a mortgage retention team at a company administering subprime mortgages in the UK at the end of 2007, and went on a trip just before the global financial crisis.
At the time, he was 24 and had worked his way up after administrative work, filing address changes and property information for upcoming mortgage transactions.
He was not a qualified advisor and did not sign or issue loans, but he said it was his job to call mortgage creditors to remind them that their period of low interest rates was over and that a higher rate was going to kick in.
A subprime mortgage is a type of loan given to riskier borrowers who typically have bad credit, and these loans contributed to much of the turmoil of the global financial crisis.
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“We started out in a pretty big office space with 20 or 30 people, and then after a year or two it built and grew until we were absolutely packed. We had our own cafeteria, so it was a pretty big operation, ”Thomas recalls.
In 2007, Thomas said the Mortgage Retention Team often called to tell mortgage creditors that their mortgage interest rates were going to drop from about three percent to 9-10 percent.
He said about 30 percent of the company’s customers were subprime borrowers.
“Basically the process went: here is the new rate – then we would get an avalanche of phone calls.
“[There was]Freaked out, people say “I wanna have fun, I wanna have fun”, but by the way, it’s going to cost £ 10 – and that was a pretty decent amount, you know.
“But for us, who were basically in our twenties, everything was new and I didn’t know how a mortgage worked. “
Thomas had considered training to become a counselor in the UK, with discussion at the office indicating that counselors made up 1% of every contract signed.
Instead, Thomas and his partner decided to take a trip around the world, passing through New Zealand, where they ended up staying.
Thomas saw the first signs of trouble firsthand. Mortgage lenders who couldn’t afford the higher rates and couldn’t afford to break the contract simply sent the keys to his office.
In another situation, Thomas says he was on the phone with a man about his age, who appeared to be speaking an elderly and crippled person.
When The Big Short movie came out, Thomas said it became clear what had happened.
Now a fully qualified mortgage advisor in Dunedin, where he worked for 11 years, Thomas said the same kind of crisis was unlikely here.
Thomas said that banks ‘policies, the Autorité des marchés financiers (FMA) code of conduct and general compliance requirements meant that borrowers’ financial ability to pay a mortgage was much more scrutinized and borrowers were stress tested to make sure they could afford repayments if interest rates rose. .
Some banks have also insisted on debt-to-income ratios of less than six times on a loan to household income.
Thomas said changes to the Credit Deeds and Consumer Finance Act (CCCFA), which take effect on December 1, would also strengthen the principles of responsible lenders.
Thomas said the housing shortage in New Zealand and the fact that young Kiwis generally stayed behind meant a collapse in house prices was unlikely.
If there was a threat to the Kiwi real estate market, it was a brain drain, Thomas said.
“When the borders start to open, people could look at the market and the economy and say, ‘well, it costs me six to eight times my salary to buy a house, the cost of living is also probably there. one of the highest in the world. . “
“It might see a migration, but I think we probably have very low net migration because the Kiwis want to come back. “