Exact has calculated that as much as GBP 30bn has been wiped off the value of mortgage portfolios held by UK based financial institutions.
In “run off books”, or the portfolios held, which banks no longer have any desire to grow, research carried out by Exact Mortgage Experts shows it is more efficient for banks to shrink these assets proactively than to hold on to them for term.
Newly originated mortgages can produce yields of six per or more whereas 2007 vintage mortgages yield considerably less with as little as 2.5 per cent in many cases, said Exact.
Because institutions aided by the UK government manage most of these run-off assets, the British taxpayer is bearing the brunt of this inefficiency and lost revenue, said the firm.
Exact calculated that the value of these portfolios is less than 80 per cent of their face value, representing a GBP 30bn value decline for these institutions – and by extension, the British taxpayer.
Run-off books can be shrunk quickly and cost-effectively by giving borrowers a cash allowance to encourage them to refinance their mortgage elsewhere or with more advanced techniques that are being pioneered. Some Borrowers will still be unable to refinance even with a large discount and institutions should protect the value of these mortgages by using servicing techniques to stop them going into arrears, said Exact.
Malcolm Larmouth, head of business development of Exact, said: “Everyone has had to dig deep in order to prop up the financial system. But keeping mortgages in run-off denies the taxpayer the chance of getting a return on their investment. If these organisations are split and sold off, the profitable parts of the businesses will go into the hands of the private sector while the inefficient and costly elements – such as these inefficient run-off mortgages – will remain under public ownership. The British taxpayer deserves better.”
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