Landlords could be a threat to banks and wider financial stability

antrobus

cells wrote: »

...Overall I would still suggest that BTL is very low risk for lenders and virtually the same as home-owner loans. repos are a little higher but there are lower arrears and likely higher equity to reduce the hit.....

"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.

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

Suggesting and knowing are two different things.:)

cells

mwpt wrote: »

I think that despite your calculations you're simplifying the situation. A default isn't something a bank wants on their books because the entire income stream and value of the bond into which these mortgages are packaged is affected. That is exactly what caused the problem previously, as you know I'm sure. So it's not that the mortgages sit on their books and when defaulting they simply sell and fill the hole, it's a lot more complicated than that.

Besides that, even if the government is just starting to turn against BTL, that's quite fine. The only limiting factor for a landlord buying properties seems to be the willingness to take on risk and the rental cover. Once they start leveraging up and remortgaging, the more properties they have they faster they can expand and bid for more places. I really don't think this is a healthy or fair situation when owner occupiers are limited by lending multiples to salary. So in theory, market rents could rise by cramming more people into the house, pushing up the BTL bid price and OOs will never be able to compete with what the BTL can bid.

you can limit BTL if you think its a negative social outcome but no need to pretend its a financial disaster waiting to happen.

landlords and owners should both be able to bid on a house on the same rental cover terms rather than income.

If you make BTL via debt less attractive it will not reverse the market to favour owners. It will instead go from debt financed BTL by small investors to savings financed BTL by big investors. There will be a mild correction in yields but I dont think more than 1%.

The way to shrink the BTL sector is to build a lot more homes. the 1990-2000 period had lower population grow and higher build rates and the owner pool grew and the renter pool shrank

antrobus

Graham_Devon wrote: »

I concur with the title.

Technically speaking the BoE did not say that 'Landlords could be a threat to banks and wider financial stability', what they said was that landlords with mortgage debt could be a threat to financial stability. That one-third or so of private sector landlords that did not acquire thir property with a mortgage would be no threat whatsoever.

Graham_Devon

cells wrote: »

Not true BTL is much less likely to be in arrears and when in arrears they are in arrears for a smaller portion of the loan.

It is true - as it's fact.

BTL loan defaults are running at twice that of residential mortgage defaults.

It's probably as a percentage of residential mortgages compared to a percentage of BTL mortgages, as it's hardly fair to look at it in raw numbers terms as you have as there are far more residential mortgages.

Graham_Devon

antrobus wrote: »

Technically speaking the BoE did not say that 'Landlords could be a threat to banks and wider financial stability', what they said was that landlords with mortgage debt could be a threat to financial stability. That one-third or so of private sector landlords that did not acquire thir property with a mortgage would be no threat whatsoever.

Thanks for pointing out the obvious.

It was though the title of the article I was referring to and linked to.

And I simply said I concur with the title....I never suggested that the BOE made such a statement. So no cigar I'm afraid

cells

Graham_Devon wrote: »

It is true - as it's fact.

BTL loan defaults are running at twice that of residential mortgage defaults.

It's probably as a percentage of residential mortgages compared to a percentage of BTL mortgages, as it's hardly fair to look at it in raw numbers terms as you have as there are far more residential mortgages.

why not look at the CML website

it shows repo for BTL running at about 700 per quarter or 2,800 per year

By comparison there are >5 million rentals and CML says more than 1.6m BTL mortgages in 2014 so probably higher now

So out of say ~1.7m BTL mortgages some 0.165% go into repo a year

that is hardly a big figure and as i keep saying a home that is repod does not cause a 100% loss of the loan some/most/all of it can be recovered.

cells

cells wrote: »

why not look at the CML website

it shows repo for BTL running at about 700 per quarter or 2,800 per year

By comparison there are >5 million rentals and CML says more than 1.6m BTL mortgages in 2014 so probably higher now

So out of say ~1.7m BTL mortgages some 0.165% go into repo a year

that is hardly a big figure and as i keep saying a home that is repod does not cause a 100% loss of the loan some/most/all of it can be recovered.

and as i keep saying BTL lending is clearly very low risk lending.

~0.165% of outstanding loans default in a given year and those that do default a majority of the loan can be recovered by resale of the security

The only person I know to have defaulted on their mortgage owned ~£120k and the bank sold the property for >£400k. I suspect a good number of defaults are these 'good defaults' which are a result of not bad loans but bad situations eg a death/divorce/mental-problems/family-crisis resulting in the bank steping in to resell the security

wotsthat

Measures have been introduced to reduce the risks of both residential and BTL mortgages and to deter prospective BTL's from entering the market. Yes, the relative rate of repossession might be higher with BTL in recent years but that could just be a function of 'forbearance' which BTL owners haven't enjoyed.

I think some generals are fighting yesterday's battles.

cells

wotsthat wrote: »

Measures have been introduced to reduce the risks of both residential and BTL mortgages and to deter prospective BTL's from entering the market. Yes, the relative rate of repossession might be higher with BTL in recent years but that could just be a function of 'forbearance' which BTL owners haven't enjoyed.

I think some generals are fighting yesterday's battles.

both are v.low already

~700 repo a quarter for BTL stock of ~1.7 million loans
~1,800 repo for owners of ~8 million loans

a much bigger annoyance for banks must be the customers in arrears. Over 100,000 owner loans are in arrears of 2.5% or more while for BTL its less than 6,000.

Proportionally owners are 4 x more likely to be in arrears and be more heavily in arrears.

And as I keep banging on, arrears and repos dont cause a 100% loss of the loan a lot and sometimes all of it is recovered

Both sectors are very low risk lending

Graham_Devon

cells wrote: »

why not look at the CML website

As far as I'm aware, the CML only include stats from their members.

75% of unregulated mortgage lending is in the BTL sector, which I believe the CML data will simply ignore. (I may be wrong).

Either way, you appear to be saying that the FPC and the BOE figures are wrong?

http://www.bankofengland.co.uk/publications/Documents/fsr/2015/dec.pdf

Page 31 has all the data.