Landlords could be a threat to banks and wider financial stability

Graham_Devon

I concur with the title.

But I guess I ought to write a bit more

“Since 2010, rates of credit loss on buy-to-let loans in the United Kingdom have been around twice those incurred on lending to owner-occupiers,” said the minutes of the FPC’s latest quarterly meeting.

“Assessed against relevant affordability metrics, buy-to-let borrowers appeared more vulnerable to an unexpected rise in interest rates or a fall in income.”

With buyers piling into the market, taking on greater levels of debt to benefit from rising house prices and low interest rates, this could pose a risk to financial stability.

“Increased competition among lenders in the buy-to-let sector had not to date led to a widespread deterioration in underwriting standards of UK banks. But some smaller lenders had loosened their lending policies, for example by raising their maximum loan-to-value thresholds,” said the FPC.

“The Committee noted that new loans to buy-to-let investors were often subject to less stringent affordability tests than loans to owner-occupiers.”

The screw is yet to be turned just that bit tighter on BTL's, IMHO.

Though you do have to question the role of funding for lending and the myriad of other schemes in this "problem".

http://www.telegraph.co.uk/finance/bank-of-england/12041563/Risky-buy-to-let-lending-on-the-up.html

CLAPTON

Graham_Devon wrote: »

I concur with the title.

But I guess I ought to write a bit more



The screw is yet to be turned just that bit tighter on BTL's, IMHO.

Though you do have to question the role of funding for lending and the myriad of other schemes in this "problem".

http://www.telegraph.co.uk/finance/bank-of-england/12041563/Risky-buy-to-let-lending-on-the-up.html

are the FPC demanding more powers to deal with the situation?
do they already have the necessary powers?
are they recommending that the government to act right now?

cells

nonsense landlords put 25% or more down and have a main home on the line too. plus some landlords own multiple properties of which the overall LTV is very likely to be 70% or lower and this would be the highly geared types

Also been some recent tightening of rental cover. BM solution the biggest lender has gone from 4.99% to 5.49%

In simple terms the change means for someone with a 25% deposit they used to be able to bid as low as 4.7% yield and now it is 5.15% or more


basically a lot of London is out or nearing out for 25% down mortgages. Its going to have to be more down to meet rental cover

padington

Graham_Devon wrote: »

I concur with the title.

But I guess I ought to write a bit more



The screw is yet to be turned just that bit tighter on BTL's, IMHO.

Though you do have to question the role of funding for lending and the myriad of other schemes in this "problem".

http://www.telegraph.co.uk/finance/bank-of-england/12041563/Risky-buy-to-let-lending-on-the-up.html

The screw is yet to be turned that bit tighter for generation Rent you mean. The costs will get passed on becasue there is no other option but to rent for many people.

If you tax rabbits lots more, rabbit lovers will pay through the nose for rabbits. Unless we are talking about controlling the price of rabbits, rather than increasing the price but we are not.

Rents have just had a rocket put up their ar*e.

Graham_Devon

padington wrote: »

Rents have just had a rocket put up their ar*e.

And it's always the same isn't it.

It does amaze me somewhat that as it's so easy to jack up rents, it hasn't already been done.

mwpt

cells wrote: »

nonsense landlords put 25% or more down and have a main home on the line too. plus some landlords own multiple properties of which the overall LTV is very likely to be 70% or lower and this would be the highly geared types

Well, someone in authority doesn't agree it's nonsense.

CLAPTON

mwpt wrote: »

Well, someone in authority doesn't agree it's nonsense.

do these people in authority have a good track record on these matters?

Generali

cells wrote: »

nonsense landlords put 25% or more down and have a main home on the line too. plus some landlords own multiple properties of which the overall LTV is very likely to be 70% or lower and this would be the highly geared types

Also been some recent tightening of rental cover. BM solution the biggest lender has gone from 4.99% to 5.49%

In simple terms the change means for someone with a 25% deposit they used to be able to bid as low as 4.7% yield and now it is 5.15% or more


basically a lot of London is out or nearing out for 25% down mortgages. Its going to have to be more down to meet rental cover

I doubt that they're making this up.

I think the problem is, if prices fall precipitously as interest rates rise then banks could end up trying to sell houses into a falling market and making price falls worse.

In addition, many investors use the Wilsons' model: extract the equity that builds up from house price rises and invest it into a new place. The problem with doing this, and I suspect one of the things the BoE is worried about, is that there will be a lot of unrealised CGT liabilities which mean that there isn't anything like the equity in the house that the bank is assuming when it prices up a loan.

CLAPTON

Generali wrote: »

I doubt that they're making this up.

I think the problem is, if prices fall precipitously as interest rates rise then banks could end up trying to sell houses into a falling market and making price falls worse.

In addition, many investors use the Wilsons' model: extract the equity that builds up from house price rises and invest it into a new place. The problem with doing this, and I suspect one of the things the BoE is worried about, is that there will be a lot of unrealised CGT liabilities which mean that there isn't anything like the equity in the house that the bank is assuming when it prices up a loan.

it seems unbelievable that banks don't know about cgt: however history probably shows otherwise

mwpt

CLAPTON wrote: »

it seems unbelievable that banks don't know about cgt: however history probably shows otherwise

It doesn't matter what people know (particularly in investment banking), it's what their incentives and actions are. Money to be made in BTL lending right now means risk (if it's real or not) will be ignored. Why take the chance, spot a potential problem early and make sure it doesn't realise.

Generali

CLAPTON wrote: »

it seems unbelievable that banks don't know about cgt: however history probably shows otherwise

If the bank didn't do the original mortgage they almost certainly don't know what was paid for the house. It's unlikely that they do even if they did the original mortgage.