Carney vows to take action on the BTL sector

Conrad

wotsthat wrote: »

I would've thought higher deposits required from BTL would reduce the risk full stop - higher chance of repossession countered by a lower chance of loss to the lender compared to residential.

If what he's saying is true and some sort of action is needed to ensure financial stability then it means the risk of BTL has been mispriced.

It's all well and good shutting the stable door after the horse has bolted but he ought to be telling us who left it open in the first place and why.

Bare in mind prior to official B2L mortgages, people used to obtain multiple resi mortgages, and then just let the places out anyway. This was rife in the late 80's / early 90's in ethnic minority communities I dealt with - they were way ahead of the wider population and had this inherent property investing mentality.



It's still relatively easy to exploit this. So if B2L mortgages become too onerous, as ever the Human spirit will simply find a work-around.


My very first B2L was a second 90% resi mortgage. Once let out I simply told the lender I had had to let it, and as was the case with many people I dealt with, the lender was more than happy.


You guys that always call for more taxes and regulations never seem aware of the 'unforeseen' consequences.


You may recall me banging on about the tightening of resi mortgages from 2008 and how this was freezing out would be home buyers in favour of b2l. Once again the joy of those calling for more regulation, back-fired and hurt the wider public by causing them to become renters.

princeofpounds

If what he's saying is true and some sort of action is needed to ensure financial stability then it means the risk of BTL has been mispriced.

It's quite possible. This class of phenomenon is something that is something that often gets mispriced.


Where an individual BTL mortgage looks like a low risk option, because the deposit is fairly chunky.


But a large class in aggregate of BTL property owners can - potentially - change the characteristics of the housing market to make it more risky. Because they can all head to the exit door at the same time, in a way that owner-occupiers cannot.


Something that is not risky for an individual can be risky in the aggregate.


A bit like a group of four friends having a drink before driving home in one car. One of them drinks, no problem, zero risk. All of them drink, highly dangerous.


It's just an illustration of a class of problems of 'emergent risk' that this could fall into. I'm not saying it is a problem in the specific case of BTL (I just don't know). But judging the systemic riskiness of BTL by judging the risk of individual BTL mortgages is not the right way to got about things.

cells

Why would a BTLer have a larger incentive to default?
On average they will have a lot more to lose

More likely is that landlords without mortgages might be willing and able to sell into a downturn. And at least in inner London about 9/10 BTL purchases are landlord to landlord. So if the BOE makes it harder to borrow to buy to let it might actually make things worse in a downturn.

If anything in a downturn BTL regulations should be made more lax so that it can support buying. I feel they have got this upsidedown

mwpt

cells wrote: »

If anything in a downturn BTL regulations should be made more lax so that it can support buying. I feel they have got this upsidedown

I'm starting to suspect that TBTB are actually a little worried about HPI in general rather than BTL in isolation. Worst case scenario for the Tory government is a housing bust just before the next elections, so perhaps they're trying to engineer a slow down now, and can always ramp up prices with more props closer to election time. Too cynical?

Thrugelmir

Conrad wrote: »

The CML has published figures that reveal mortgage delinquency in the B2L sector is lower than that found in the residential sector, so this idea LL's will pile in and sell up if prices fall is a surprise to me.

That's not the BOE's concern with the sector. The BOE is focused on the balance sheets of the banks and other mortgage funders (some at least).

princeofpounds

If anything in a downturn BTL regulations should be made more lax so that it can support buying. I feel they have got this upsidedown

But this is precisely the point. We are 20+ years into an unprecedented housing boom with only a temporary bump on the way. BTL doesn't need rescuing from anything... yet.


And yes - restricting liquidity to BTL landlords can indeed bring the market down - or at least cool it off. That's what they are thinking of doing. Better to !!!!! the bubble earlier rather than later (if we aren't too late already).


PS I write that following the assumption that central banks should try to manage asset prices. I'm not sure there is much wisdom in that, but that's a task they are set.


EDIT - apparently the filter doesn't like the word commonly used for pressing a surface with a sharp instrument...

michaels

cells wrote: »

Why would a BTLer have a larger incentive to default?
On average they will have a lot more to lose

More likely is that landlords without mortgages might be willing and able to sell into a downturn. And at least in inner London about 9/10 BTL purchases are landlord to landlord. So if the BOE makes it harder to borrow to buy to let it might actually make things worse in a downturn.

If anything in a downturn BTL regulations should be made more lax so that it can support buying. I feel they have got this upsidedown

Perhaps it is not the losses on the btl properties that they are worried about but the impact on the economy as a whole of a housing market crash, the issue with btl is not the risk of bank losses on the btl properties but the risk to the economy of house price instability with a large share of the market being held by investors who see it as a liquid investment not a home.

Crashy_Time

wotsthat wrote: »

He's picking up some British habits. When trying to deflect something talk about something to do with houses and interest will be lost in the subject.

I found it amazing that he's been as good as promising interest rate rises for more than a year and his latest excuse is that he couldn't predict oil would fall 12% in 10 days! It makes it sound as if the MPC are making decisions based on what they read in the newspaper on the day they meet.

Yellen said in her Q+A session today that the price of oil was not going to be a major factor in their rate decision making, after all if it was they wouldn`t have already hiked?

Crashy_Time

michaels wrote: »

Perhaps it is not the losses on the btl properties that they are worried about but the impact on the economy as a whole of a housing market crash, the issue with btl is not the risk of bank losses on the btl properties but the risk to the economy of house price instability with a large share of the market being held by investors who see it as a liquid investment not a home.

Houses are not a liquid investment and the best thing for the economy would be a HPC as there will be a surge in new lending and a rush to stock up on building and DIY materials as new homeowners tart their places up. The government and the banks don`t care if someone with no mortgage loses 200 or 300k of imaginary money off the price of their house, they only care about lending and getting the economy running so they can cream off some tax. The banks are stable enough now to weather a big HPC, but QE is not having the desired effect in the real economy, hence the attempt at rate rises and the sacrificing of BTL mugs.

ukcarper

Crashy_Time wrote: »

Houses are not a liquid investment and the best thing for the economy would be a HPC as there will be a surge in new lending and a rush to stock up on building and DIY materials as new homeowners tart their places up. The government and the banks don`t care if someone with no mortgage loses 200 or 300k of imaginary money off the price of their house, they only care about lending and getting the economy running so they can cream off some tax. The banks are stable enough now to weather a big HPC, but QE is not having the desired effect in the real economy, hence the attempt at rate rises and the sacrificing of BTL mugs.

This post is bad even by your standards.