Bradford & Bingley’s specialist mortgage loan book has a high proportion of home loans taken out by borrowers who have relatively little equity in the property.
The UK’s biggest buy-to-let lender was forced this week to bring in the private equity group TPG as a 23% shareholder and re-price its rights issue after a profits warning caused by rising arrears in its mortgage book.
There has been concern about the quality of B&B’s book as arrears levels in its self-certified loan book jumped to 3.59% in the first four months of 2008 from 2.74% at the end of last year.
Borrowers who take out self-certified mortgages do not need to verify their income with evidence such as pay slips.
The FT has analysed data given by Chris Wilford, B&B’s finance director, to a City conference in April which showed that the bank had an £8.5bn loan book of self-certified mortgages and 36% of that had a loan-to-value ratio of 85% or more. The figures were adjusted for house price inflation.
This means that if house prices were to fall by 15% these borrowers would have little or no equity in their properties, or even slide into negative equity.