Supplementary materials Mortgage arrears reduce building society profits

1. The growth in building society profits for this financial year is expected to be restrained due to a sharp increase in the number of buy-to-let property owners going into mortgage arrears.

2. However, the recent interest rate cut is likely to cause arrears to level off, and recently introduced government measures aimed at supporting the buy-to-let market are likely to provide a last-minute boost to building society annual profits.

3. James Edwards, chief executive of the market leaders City and Provincial Building Society, said in a trading statement last week that he broadly concurred with analysts’ forecasts of full-year profits for his company to rise by 5% to £240m. However, the fact that soaring growth in the buy-to-let market (where C&P has a 19% share) has cooled significantly coupled with concerns about arrears has knocked 7.25p off the company’s share price, leaving it at 264p.

4. Despite predictions for growth across the sector as a whole averaging around 4.5%, the share prices of the five leading players in the market have declined by an average of just under 3%. Yields may be falling, but the restricted supply of new-build homes and continuing enthusiasm for buy-to-let have kept the housing market buoyant, and only the most pessimistic of analysts are predicting a slump. Nevertheless, cautious corporate investors have been reducing their holdings.

5. Such fears may well prove to be misplaced. Hints by the Bank of England regarding a further interest rate cut could underpin further growth.

6. An additional boost is likely to be provided by changes to pension rules from April 5th next year. Holders of Self Invested Personal Pensions (SIPPs) will be permitted to invest funds from their pensions in residential property.

7. Up to £15bn of pension cash is expected to flood into the market, including tax relief worth as much as £5bn. This is certain to create a boom in buy-to-let investment, shoring up building society yields, and to push up house prices, especially in areas where they have been in decline, creating more attractive investment opportunities.

8. In addition, the buy-to-let market is likely to continue to benefit from the fact that many would-be first time buyers remain priced out of the market, ensuring healthy demand for rental properties. Evidence suggests that large numbers of potential first time buyers are also delaying their plans to buy to due uncertainty on house prices, creating a build-up of demand which is likely to be released when house prices stabilize.

9. A spokesperson for the number two mortgage lender Bolton and Rochdale reported last month that new business volumes have grown steadily month on month from a low base, and that the growth of both the residential and buy-to-let mortgage markets remains robust.

10. However, this upbeat stance was offset by Banker and Mortgage Lender magazine, which predicted that house prices are poised to fall by an average of up to 7% across the UK. The South West in particular was viewed as overvalued, with prices in some areas set to see a drop as high as 15%. In contrast, London is now seen as slightly undervalued, following some dramatic falls over the last year and, according to the magazine, house prices there are set to rise by a minimum of 4% a year for the next three years.

Exercise 15.Choose the definition which is closest to the meaning in the article.

1. buy-to-let property owners (paragraph 1)

a. people who rent their homes b. people who buy homes to rent to others

2. growth has cooled significantly (paragraph 3)

a. it's growing more slowly b. it's declining

3. a boom in buy-to-let investment (paragraph 7)

a. a lot more people buying-to-let b. slightly more people buying-to-let

4. tax relief worth as much as £5bn (paragraph 7)

a. up to £5bn reduction in tax to be paid b. up to £5bn increase in tax to be paid

5. would-be first-time buyers… (paragraph 8)

a. people who are going to buy their first home. b. people who would like to buy their first home

6. …remain priced out of the market (paragraph 8)

a. find it very expensive b. can't afford it

Exercise 16.Find words in the article with the same meaning as the following.

1. overdue mortgage payments (paragraph 1) m____________ a_____________

2. profits (paragraph 4) y____________

3. support (paragraph 7) s____________ u____________

4. low starting point (paragraph 9) l____________ b____________

5. worth less than the current price (paragraph 10) o____________-v____________

Exercise 17.Complete the definitions.

1. Mortgage arrears are starting to level off means that mortgage arrears …

a. have stopped increasing b. are decreasing

c. are increasing more slowly than they were

2. There was soaring growth in the buy-to-let market means that…

a. profits from buy-to-let mortgages increased b. house prices increased

c. buy-to-let mortgages became more expensive

3. The housing market is buoyant means that …

a. house prices are rising b. house prices are static

c. house prices are falling

4. Investors have been reducing their holdings means that investors have been…

a. buying more shares b. selling all their shares

c. selling some of their shares

5. Interest rate cuts could underpin further growth means that interest rate cuts could…

a. cause further growth b. prevent further growth

c. be caused by further growth

6. Pension cash will flood into the market means that pension fund managers will…

a. avoid this market b. invest heavily in this market

c. make a lot of money from this market

7. New business volumes have grown steadily month on month means that…

a. business has increased every month b. profits have increased every month

c. the number of new customers has increased every month

8. Prices are poised to fall by 7% means that…

a. prices are falling b. prices are expected to fall

c. prices will fall

Exercise 18.Single the main points of the text. Use the following opening phrases.

The text looks at the (the problem of)…;

The text deals with the issue of…;

It is clear from the text that…;

Among other things the text raises the issue of…;

The problem of…is of great importance;

One of the main points to be singled out is…;

In this connection, I’d like to say…;

I find the question of…very important because…;

I think that…should be mentioned here as a very important mechanism of…

Key terms

A mortgage loan is a loan to finance the purchase of real estate, usually with specified payment periods and interest rates. The borrower (mortgagor) gives the lender (mortgagee) a lien on the property as collateral for the loan. The mortgagor's lien on the property expires when the mortgage is paid off in full.

To amortize - 1. To liquidate (a debt, such as a mortgage) by installment payments or payment into a sinking fund.2. To write off an expenditure for (office equipment, for example) by prorating (пропорційне росподілення) over a certain period.

To pay off - to pay the full amount on (a debt).

A credit union - is a cooperative financial institution that is owned and managed by its members, and is closely regulated just like any other financial institution. Usually, credit unions provide services to groups that share common interests or something in common. (such as a workplace), an area where they live, or a church they visit.

Mortgage-Backed Security (MBS) is a type of asset-backed security that is secured by a mortgage or collection of mortgages. These securities must also be grouped in one of the top two ratings as determined by a accredited credit rating agency, and usually pay periodic payments that are similar to coupon payments.

Asset-Backed Security (ABS) is a financial security backed by a loan, lease or receivables against assets other than real estate and mortgage-backed securities. For investors, asset-backed securities are an alternative to investing in corporate debt. An ABS is essentially the same thing as a mortgage-backed security, except that the securities backing it are assets such as loans, leases, credit card debt, a company's receivables, royalties and so on, and not mortgage-based securities.

Collateralized Debt Obligation (CDO) is an investment-grade security backed by a pool of various other securities. CDOs can be made up of any type of debt, in the form of bonds or loans, and usually do not deal with mortgages. CDOs are divided into slices, each slice is made up of debt which has a unique amount of risk associated with it. CDOs are often sold to investors who want exposure to the income generated by the debt but do not want to purchase the debt itself. CDO is a general term used to refer to collateralized bond obligations (CBO), collateralized loan obligations (CLO),and collateralized mortgage obligations (CMO).

Mortgage Servicing Rights (MSR) is a contractual agreement where the right, or rights, to service an existing mortgage are sold by the original lender to another party who specializes in the various functions of servicing mortgages. Common rights included are the right to collect mortgage payments monthly, set aside taxes and insurance premiums in escrow, and forward interest and principal to the mortgage lender.

A down payment is a type of payment made in cash during the onset of the purchase of an expensive good/service. The payment typically represents only a percentage of the full purchase price; in some cases it is not refundable if the deal falls through.

A loan term is a period over which a loan agreement is in force, and before or at the end of which the loan should either be repaid or renegotiated for another term.

Loan terms are conditions and requirements included in a loan agreement that specify the loan amount, term, interest rate, and other enforceable conditions agreed to by the borrower and the lender.

An underlying mortgage is the first mortgage taken out by a housing cooperative. The mortgage is secured by the land and the building owned by the cooperative. Also called blanket loans or blanket debt.

Clear title is1. a title that is free of liens and legal questions as to ownership of the property. A requirement for the sale of real estate also called just title or good title or free and clear. 2. The right to the ownership and possession of any item that may be legally recognized as belonging to someone or something. In its most basic sense, title is the recognition of ownership.

A deed is a legal document conveying title to a property. A legal document that grants the bearer a right or privilege, provided that he or she meets a number of conditions.

Title Search is an examination of public records to determine and confirm property's legal ownership, and find out what claims are on the property. A title search is usually performed by a title company or an attorney, who researches the vested owner, the liens or other judgments on the property, the loans on the property and the property taxes due.

Title Insurance is an insurance that covers the loss of an interest in a property due to legal defects and that is required if the property is under mortgage. Most title insurance is lender's title insurance, which is paid for by the borrower but protects only the lender. Owner's title insurance is a separate policy; in some areas it is paid for by the seller to protect the buyer's equity in the property.

Private mortgage insurance (PMI) is a mortgage insurance provided by non government insurers that protects a lender against loss if the borrower defaults. Mortgage originator is an institution or individual that works with a borrower to complete a mortgage transaction. A mortgage originator can be either a mortgage broker or a mortgage banker, and is the original mortgage lender. Mortgage originators are part of the primary mortgage market.

Mortgage aggregator is part of the second mortgage market. They buy mortgages from financial institutions and then secure them with mortgage-backed securities.

A securitizer is originator or initiator of an asset backed security (ABS). Typically a business, bank, or individual. This entity can also transfer assets to the issuer directly or indirectly by monetizing and selling mortgage loans as stocks or bonds to other investors.

An insurance company is a company that offers insurance policies to the public, either by selling directly to an individual or through another source such as an employee's benefit plan. An insurance company is usually comprised of multiple insurance agents. An insurance company can specialize in one type of insurance, such as life insurance, health insurance, or auto insurance, or offer multiple types of insurance.

Hedge funds - portfolio of investments that uses advanced investment strategies such as leveraged, long, short and derivative positions in both domestic and international markets with the goal of generating high returns.

Collateral is property or other assets that a borrower offers a lender to secure a loan. If the borrower stops making the promised loan payments, the lender can seize the collateral to recoup its losses. Collateral offers some security to the lender in case the borrower fails to pay back the loan.

A lien is the legal right of a creditor to sell the collateral property of a debtor who fails to meet the obligations of a loan contract. A lien exists, for example, when an individual takes out an automobile loan. Another type of lien is a mechanic's lien, which can be attached to real property if the property owner fails to pay a contractor for services rendered. If the debtor never pays, the property can be auctioned off to pay the lien holder.

A borrower qualification is a preliminary assessment by a lender of the amount it will lend to a potential homebuyer. The process of determining how much money a prospective home buyer may be eligible to borrow before he or she applies for a loan.