Influences on secured lending property valuations in the UK

A significant part of bank lending in the UK is secured on commercial property and valuations play an important part in this process. They are an integral part of risk management within the banking sector. It is therefore important that valuations are independent and objective and are used properly to ensure that secured lending is soundly based from the perspective of both lender and borrower. The purpose of this research is to examine objectivity and transparency in the valuation process for bank lending and to identify any influences which may undermine the process. A detailed analysis of 31 valuation negligence cases has been followed by two focus groups of lenders and valuers and also questionnaire surveys of commercial lenders and valuers. Many stakeholders exist, for example lenders, borrowers and brokers, who are able to influence the process in various ways. The strongest evidence of overt influence in the process comes from the method of valuer selection with borrowers and brokers seen to be heavily involved. There is some also some evidence of influence during the draft valuation process. A significant minority of valuers feel that inappropriate pressure is applied by borrowers and brokers yet there is no apparent part of the process that leads to this. The panel system employed by lenders is found to be a significant part of the system and merits further examination. The pressure felt by valuers needs more investigation along with the question of if and how the process could dispel such feelings. This is seen as particularly important in the context of bank regulation.

The economic consequences of mortgage debt

Unsurprisingly, a great deal of attention has been paid to the economic consequences of the credit crunch. However, this paper shows that the credit crunch was preceded by a strong build-up of mortgage debt internationally, which, in the long run, could turn out to be more significant than the credit crunch itself. Indeed, the debt build-up suggests that the credit crunch is more likely to reoccur, because highly-indebted households have weaker buffers to withstand unexpected shocks to their incomes or to interest rates. The paper presents a model that can explain the debt build-up and changes to the distribution of debt between existing owners and first-time buyers, which hinders access to home-ownership for the latter, even amongst those households who would be considered as credit-worthy.

European CMBS pricing: bond, mortgage and real estate characteristics

The recent global economic crisis is often associated with the development and pricing of mortgage-backed securities (i.e. MBSs) and underlying products (i.e. sub-prime mortgages). This work uses a rich database of MBS issues and represents the first attempt to price commercial MBSs (i.e. CMBSs) in the European market. Our results are consistent with research carried out in the US market and we find that bond-, mortgage-, real estate-related and multinational characteristics show different degrees of significance in explaining European CMBS spreads at issuance. Multiple linear regression analysis using a databank of CMBSs issued between 1997 and 2007 indicates a strong relationship with bond-related factors, followed by real estate and mortgage market conditions. We also find that multinational factors are significant, with country of issuance, collateral location and access to more liquid markets all being important in explaining the cost of secured funding for real estate companies. As floater coupon tranches tend to be riskier and exhibit higher spreads, we also estimate a model using this sub-set of data and results hold, hence reinforcing our findings. Finally, we estimate our model for both tranches A and B and find that real estate factors become relatively more important for the riskier investment products.

Income multiples and mortgage repossession in the UK

This paper presents the findings of the study that examines how income multiples for mortgage loan associates with home repossession using the data of the Council of Mortgage Lenders (CML). It employs a statistical measure for improving regression efficiency with conditioning information in the form of lagged instrument to unravel the pattern of association evident from the data. Based on the data, the study investigates what level of income multiples is optimum – that is the income multiple that minimises home repossession. A sensitivity analysis was undertaken to show how home repossession responds to changes in income multiples. For each of the analytical tasks, the study compares the aggregate market, first-time-buyers, and home movers.

Influences on secured lending property valuations in the UK

A significant part of bank lending in the UK is secured on commercial property and valuations play an important part in this process. They are an integral part of risk management within the banking sector. It is therefore important that valuations are independent and objective and are used properly to ensure that secured lending is soundly based from the perspective of both lender and borrower. The purpose of this research is to examine objectivity and transparency in the valuation process for bank lending and to identify any influences which may undermine the process. A detailed analysis of 31 valuation negligence cases has been followed by two focus groups of lenders and valuers and also questionnaire surveys of commercial lenders and valuers. Many stakeholders exist, for example lenders, borrowers and brokers, who are able to influence the process in various ways. The strongest evidence of overt influence in the process comes from the method of valuer selection with borrowers and brokers seen to be heavily involved. There is some also some evidence of influence during the draft valuation process. A significant minority of valuers feel that inappropriate pressure is applied by borrowers and brokers yet there is no apparent part of the process that leads to this. The panel system employed by lenders is found to be a significant part of the system and merits further examination. The pressure felt by valuers needs more investigation along with the question of if and how the process could dispel such feelings. This is seen as particularly important in the context of bank regulation.

Human rights and mortgage repossession: beyond property law using Article 8

Following the Supreme Court decisions in Manchester CC v Pinnock and Hounslow CC v Powell, this article examines the possible impact of Article 8 of the European Convention on Human Rights and Fundamental Freedoms upon protection of the home in creditor repossession proceedings. The central argument advanced is that, although occupiers may not all be protected through property law, they may enjoy an independent right to respect for their home under Article 8, which should be acknowledged in the legal frameworks governing creditor's enforcement rights against the home. The article suggests that the most common creditor enforcement route, through mortgage repossession proceedings, falls short in this regard. It takes as its primary focus the treatment of children in such proceedings to provide an example of the potential for a human rights-based property protection heralded by these two Supreme Court decisions.

Collateral, Intermediated Lending, and Aggregate Productivity

Neste trabalho busca-se compreender como que restrições a diferentes tipos de crédito - doméstico e internacional - afetam a dinâmica de uma economia, especialmente com relação a sua Produtividade Total dos Fatores (PTF). Para ajudar no entendimento dessa questão e assuntos relacionados, propomos um simples modelo de economia aberta. Nesse contexto, empreendedores domésticos possuem produtividades heterogêneas, o que implica que a distribuição de riqueza entre indivíduos é essencial para a determinação da produtividade agregada da economia. Além disso, o ambiente de comprometimento limitado obriga os tomadores de empréstimo a dispor de colateral para contrair dívidas. Por hipótese, dívida doméstica e externa requerem diferentes quantidades de colateral. O modelo gera uma dinâmica macroeconômica rica após mudanças na taxa de juros internacional e restrições a crédito. Mais especificamente, um alívio na restrição doméstica causa um aumento da PTF, enquanto a mesma variação na restrição internacional tem o efeito contrário.

Cyclicality of SME Lending and Government Involvement in Banks

Recent regulatory efforts aim at lowering the cyclicality of bank lending because of its potential detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending by local banks with vs. without a public mandate, controlling for location, size, loan maturity, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a deviation from strict profit maximization and a sustainable provision of financial services to local customers. We find that banks with a public mandate are 25 percent less cyclical than other local banks. The result is credit supply-side driven and especially strong for savings banks with high liquidity and stable deposit funding. Our findings have implications for the banking structure, financial stability and the finance-growth nexus in a local context.

Cyclicality of SME lending and government involvement in banks

Recent regulatory efforts aim at lowering the cyclicality of bank lending because of its potential detrimental effects on financial stability and the real economy. We investigate the cyclicality of SME lending by local banks with vs. without a public mandate, controlling for location, size, loan maturity, funding structure, liquidity, profitability, and credit demand-side factors. The public mandate is set by local governments and stipulates a deviation from strict profit maximization and a sustainable provision of financial services to local customers. We find that banks with a public mandate are 25 percent less cyclical than other local banks. The result is credit supply-side driven and especially strong for savings banks with high liquidity and stable deposit funding. Our findings have implications for the banking structure, financial stability and the finance-growth nexus in a local context.

Peer to peer lending and financial inclusion in Brazil: a case study

While pursuing the objective to investigate the potential for the P2P innovation to enhance financial inclusion in Brazil, the P2P industry and the current market environment were analyzed in order to highlight the factors that can facilitate this desired enhancement. There seems to be no doubt that there is substantial potential for the P2P industry worldwide and in Brazil but, beyond this, a considerable part of this industry could be providing financially inclusive products. The P2P industry in Brazil needs to recognize the potential for growing, not only the industry itself, but also the market for financially inclusive P2P products. The first section of this thesis focuses on financial inclusion briefly in order to establish the frame of what is being addressed. Subsequently the P2P industry is analyzed globally, locally in Brazil and with regard to financial inclusion. The study is conducted through an interview with the founder of a P2P platform in Brazil and its data collection is used to build a case study which allowed for an analysis of the potential for financial inclusion of the P2P industry and the development of key success factors with regard to converting this potential into results.