Buy-to-let poses potential threat to financial stability, says Bank of England Govern

Thrugelmir

What the papers say

In its latest Financial Stability Report, the Bank noted that buy-to-let mortgage lending now accounts for 15 per cent of the entire stock of mortgage debt in the UK, up from around 10 per cent in 2008 and just 1 per cent in 2000. This form of property lending also represented 20 per cent of new mortgage loans underwritten by banks in the first quarter of the year.

The Bank also dropped a hint it might like to receive powers to regulate the flow of buy-to-let loans. The Treasury has committed to consult later this year on whether to give the Bank’s Financial Policy Committee a “power of direction” to limit high loan-to-value or high loan-to-income buy-to-let mortgage lending.

http://www.independent.co.uk/news/business/news/buytolet-poses-potential-threat--to-financial-stability-says-bank-of-england-governor-mark-carney-10359650.html

padington

Last chance for easy BTL loans.

That's going to create a bum rush if ever I've seen one.

stator

Glad to see the Government of the BoE finally catching up with something the rest of us realists have known for years.

BobQ

How can something that has been around for a couple of decades be a threat to stability? If all the BTLs were overnight transferred to new owners who occupied but still needed mortgages, how would that make the economy more stable?

padington

BobQ wrote: »

How can something that has been around for a couple of decades be a threat to stability? If all the BTLs were overnight transferred to new owners who occupied but still needed mortgages, how would that make the economy more stable?

Because owner occupiers don't do interest free mortgages (much) so their 'risk' goes down over time.

Generali

AIUI, there are two sides to the risk coin with BTL. On the one, BTL could be seen as more risky as people will fight tooth and nail to keep the family home. An investment however? Perhaps not.

The other side is that, AIUI, when you get a BTL mortgage your own home is also on the line so the bank has much more collateral than on a OO property. Also, LTVs tend to be much higher than on an OO place, at least initially.

Any area of lending where banks have high exposure is always going to represent a risk though. It would be the same if the banks were lending a lot on credit cards or car loans or business loans.

michaels

BTL mortgages get much more expensive as the LTV increases so the market is pricing the risk.

Generali

michaels wrote: »

BTL mortgages get much more expensive as the LTV increases so the market is pricing the risk.

Just because the market is putting a price on risk doesn't mean that it is pricing risk accurately.

cells

Generali wrote: »

Just because the market is putting a price on risk doesn't mean that it is pricing risk accurately.

In the case of BTL loans, its probably overpricing said risk*

Roughly a 10% down owner loan is priced similar to a 25% down BTL loan





* especially in a rising market

Thrugelmir

stator wrote: »

Glad to see the Government of the BoE finally catching up with something the rest of us realists have known for years.

More likely a form of forward guidance to the markets.

stator

BobQ wrote: »

How can something that has been around for a couple of decades be a threat to stability? If all the BTLs were overnight transferred to new owners who occupied but still needed mortgages, how would that make the economy more stable?

Scale I suppose.