Today is the 10th anniversary of Lloyds TSB acquiring HBOS. An awful lot has been written about this, but there has been comparatively little about why a regulatory approach that was implemented in early 2008, and which was meant to protect the bank from losing its capital with a probability of 1 in 1,000 years, failed so spectacularly only 9 months later. What went wrong?
How Big is the NNEG Across the Equity Release Sector?
Most UK Equity Release mortgages1 involve a no-negative equity guarantee (NNEG) by which the lender guarantees that the borrower (or their estate, if they have passed away by then) will never need to pay back more than the value of their house when the loan is repaid.
The valuation of these NNEGs has become an issue in light of recent reports – Howard Mustoe’s BBC story “Home equity release may cost pension firms billions” and my Adam Smith Institute report, “Asleep at the Wheel: the Prudential Regulation Authority and the Equity Release Sector.”
In particular, our reports claimed that Equity Release firms are undervaluing their NNEG guarantees – and to a considerable extent.
So how big is the NNEG valuation ‘problem’ across the Equity Release sector?
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Letter to the Guv’nor
Is the Bank of England pandering to freeholders over punitive lease valuations? Read all about it here, by Leasehold Knowledge, who have spotted the connection between the deferment rate consultation by the PRA, and the issue of leaseholder exploitation by large vested interests. A copy of their letter to the Guv’nor, and a nice picture of Kevin too.