Stress testing of banks

padington

So the bank of Engand found that 60 % of BTl landlords would struggle with a 3% rise in interest rates and only 4% of owner occupiers would. Now they possibly intend on doing something about it.

What do you think will happen ?

Mistermeaner

padington wrote: »

So the bank of Engand found that 60 % of BTl landlords would struggle with a 3% rise in interest rates and only 4% of owner occupiers would. Now they possibly intend on doing something about it.

What do you think will happen ?

Keep interest rates low?

CLAPTON

padington wrote: »

So the bank of Engand found that 60 % of BTl landlords would struggle with a 3% rise in interest rates and only 4% of owner occupiers would. Now they possibly intend on doing something about it.

What do you think will happen ?

sack the BoE people who allowed this to happen?

Graham_Devon

padington wrote: »

What do you think will happen ?

Some forward guidance on something or other.

The stress tests also stress tested the banks should oil fall to $38 a barrel (amongst other scenarios).

It seems a bit of a bizzare stress test. That's just $5 a barrel less than it is today. In many cases a couple of days movement either way.

So things are OK, so long as oil doesn't fall 10% from where it is today.

Some stress test then.

Masomnia

I think this is why Osborne has started to cut the benefits of BingTL by ending tax breaks etc. I think they're finally waking up to just how much risk this could pose to the UK economy.

Masomnia

CLAPTON wrote: »

sack the BoE people who allowed this to happen?

Not really their job.

Fortunately we've sacked the people who beggared up the regulation, though.

CLAPTON

Masomnia wrote: »

Not really their job.

Fortunately we've sacked the people who beggared up the regulation, though.

whose job is it?

padington

No one thinks buy to let mortgages will have to be stress tested by looking at the customers bank account etc like owner occupier ones soon ?

Seems the sensible thing to do, although it might cause people to hold on to what they have for fear of no return.

Didn't Something similar happen in Singapore ?

Thrugelmir

padington wrote: »

So the bank of Engand found that 60 % of BTl landlords would struggle with a 3% rise in interest rates and only 4% of owner occupiers would. Now they possibly intend on doing something about it.

What do you think will happen ?

Tighten the regulatory environment for the lenders. The borrowers can walk away by simply going bankrupt. The banks are left with the hole in their balance sheets. Having leveraged up on the securitisation of debt.

cells

the risk of lending to BTL is very low in my view. They often put down 25% or more and house prices crashes at that level do not happen. Also the 25% deposit only applies to a BTL mortgage taken out a day before the start of a recession. In this environment a BTL with 25% down has 40% equity in two years time so there would need to be a 40% crash before the bank takes the pain

in short 99.9% of the risk lies with the borrower and the bank takes on 0.1% of the risk imo

Of course if they were to offer 5% down BTL mortgages then things would be different but at 25% down its nothing to worry about imo

antrobus

Graham_Devon wrote: »

Some forward guidance on something or other.

The stress tests also stress tested the banks should oil fall to $38 a barrel (amongst other scenarios).

It seems a bit of a bizzare stress test. That's just $5 a barrel less than it is today. In many cases a couple of days movement either way.

So things are OK, so long as oil doesn't fall 10% from where it is today.

Some stress test then.

Not really.

There is only one scenario and only one stress test; "a rapid deterioration of market sentiment globally", or what happens if China falls over etc. The BoE did not test for the impact of a $38 oil price, the low oil price is simply one of the features of this 'global downturn'. Others include falling property prices in China and Hong Kong.

http://www.bankofengland.co.uk/financialstability/documents/stresstesting/2015/keyelements.pdf

I understand that next year's test will be, what happens if the USA falls over.