Carney vows to take action on the BTL sector

Generali

cells wrote: »

so he should reduce the capital banks need to hold for BTL mortgages making BTL rates fall and the sector more attractive so landlords dont sell...

That's not on the cards.

You don't need a weatherman to tell the wind is blowing against BTL right now. The fact is that central bankers and politicians, rightly or wrongly, are hell bent on destroying the sector in the current model, what we could loosely call the Wilson Model where people borrow against capital gains in order to buy further investment properties and act as a small business.

If I had BTL places bought on mortgages and lived in the UK I'd definitely be selling right now. The Government and HMLO are determined to put you out of business.

Generali

buglawton wrote: »

In the share market, it's an axiom that a part of any company's stock must be liquid - easily tradable - and a market comprising such stocks has the ability to find the correct price level day by day.

There have been examples of stocks held mainly by one family, these are much less liquid and the market has to guess at their true value. Such shares can stay mysteriously stable for years, then suddenly lurch when a block is put on the market.

There are commonly used liquidity measures that allow you to mitigate that risk. The main one that is used is to look at the average number of shares traded each day and see how many day's worth of shares you hold. Up to a day or two would be considered fine for a fund, more than that and you at least need to recognise that you have a liquidity risk.

buglawton wrote: »

So Carneys logic about BTLs is that having a lot of highly mortgaged ones is a bad thing for stability and the solution is to discourage them. Let's see how he goes about that. If he wants to discourage highly leveraged borrowing then will he also ban the banks from getting involved in hedge funds and derivatives? Perhaps he could rein in credit card usage at the same time.

His view, rightly in my opinion, is that BTL is a crowded trade and one which has become increasingly reliant on capital gains rather than yield from rent and there is a risk that everyone is going to run for the door at the same time.

Banks' involvement in hedge funds and derivatives carry capital requirements and tie up balance sheet in a way that Mr Carney sees as taking on an acceptable level of risk. Credit card lending attract is high-risk, high-cost debt for the most part and is carried on the balance sheet as such.

Mr Carney when he says this stuff isn't making it up. He hasn't got an anti-BTL agenda, his wife didn't run off with a landlord as far as I am aware. He sees a genuine risk and is being prudent in acting on that risk.

As I say in the previous post, if your model is running BTL on debt as a small business, I would definitely get out if I were you. If your model is running it as a limited business or REIT or have little or no debt then I think you're safe for now. If Mr Corbyn gets in then BTL LLs are screwed.

cells

Generali wrote: »

That's not on the cards.

You don't need a weatherman to tell the wind is blowing against BTL right now. The fact is that central bankers and politicians, rightly or wrongly, are hell bent on destroying the sector in the current model, what we could loosely call the Wilson Model where people borrow against capital gains in order to buy further investment properties and act as a small business.

If I had BTL places bought on mortgages and lived in the UK I'd definitely be selling right now. The Government and HMLO are determined to put you out of business.

:eek:

Of course my VI side hopes you are wrong.

My logical side thinks the gov is just after some change at the back of the sofa

My cynical side is thinking maybe the Canadian has taken it upon himself to manage (shrink) one sector of the economy which really isn't his business (eg he doesn't really think its a bigger risk than OO to the financial world but he wants to shrink BTL anyway)


Overall I can not see prices going down for the BTL sector alone, its the same product (mostly) as the owner sector, so worse case is if the government push taxes too high or the regulators push costs too high is to sell at a non reduced price.

buglawton

Generali wrote: »

His view, rightly in my opinion, is that BTL is a crowded trade and one which has become increasingly reliant on capital gains rather than yield from rent and there is a risk that everyone is going to run for the door at the same time.

The paradox is, that's about the only hope there is of prices ever dropping or flatlining and new non BTL buyers coming in.

But let's say the real long term plan is to ensure that BTL lenders are less exposed. The result will be a smaller BTL market. Not so good for those with a genuine need to rent such as students, migrants, divorcing couples, job movers etc.

A hard stop on moderate to high BTL lending would probably result in 80% of all new build developments anywhere near London being bought by cash-rich non UK residents. The recent sale of a block of 50 Kent homes to Chinese investors, with another 900 probably to go To Arab buyers are hints of the future. Perhaps foreign property investors will be Carneys next target. It looks more and more as if he's making up government policy.

Thrugelmir

cells wrote: »

so he should reduce the capital banks need to hold for BTL mortgages making BTL rates fall and the sector more attractive so landlords dont sell...

He can't. Banks are adjusting to comply with Basle III regulations. These don't even come into force until 2019. BOE and PRA is keeping banks in step by setting a higher bar now that's all. There's only one overall direction of travel. Anyone running a business needs to be thinking long term now.

Graham_Devon

cells wrote: »

Overall I can not see prices going down for the BTL sector alone, its the same product (mostly) as the owner sector, so worse case is if the government push taxes too high or the regulators push costs too high is to sell at a non reduced price.

That's your call.

One representative last night on the news stated the government is giving plenty of time and warning to the sector.

Take that as you will. But I guess it's true. They could have implemented stuff quicker and they certainly don't need a 6 month consultation in order to give the BOE more power over BTL.

What they have done is given people a heads up and this appears rather deliberate.

There appears to be two crowds now. The landlords who believe this intervention will simply mean increased rents for them and increased gains. And those landlords who appear to be making plans to sell up and get out now.

I don't know which way it will go. One thing is for certain though is that the warning shots have well and truly been fired several times.

ukcarper

Crashy_Time wrote: »

Mmmmm....I love the smell of fear on a winters night. My rent has been cheap during the "Boom" years so I have no idea what mental gymnastics you must go through to convince yourself that it will be expensive during the bust :rotfl: You have had one too many I.O mortgages mate, it is playing havoc with your head :rotfl:

The LHA rate for a 1 bed in Edinburgh is £500 which I think is set at the 30 percentile so a £400 flat must be really nice.

westernpromise

The interesting thing to me is that the incidence of mortgage default is higher in the BTL sector than the OO sector.

This can only be because the tenants either fail to pay the rent (so the landlord can't serve the mortgage); or they do pay it, but the market rent that they can afford is insufficient to serve the interest-only mortgage.

Whichever it is, it doesn't look good for people like that if their landlord sells. Either they can't buy because they have a bad credit history, or they can't afford the repayment mortgage they'll need to buy it.

cells

Graham_Devon wrote: »

That's your call.

One representative last night on the news stated the government is giving plenty of time and warning to the sector.

Take that as you will. But I guess it's true. They could have implemented stuff quicker and they certainly don't need a 6 month consultation in order to give the BOE more power over BTL.

What they have done is given people a heads up and this appears rather deliberate.

There appears to be two crowds now. The landlords who believe this intervention will simply mean increased rents for them and increased gains. And those landlords who appear to be making plans to sell up and get out now.

I don't know which way it will go. One thing is for certain though is that the warning shots have well and truly been fired several times.

Are you sure that's the case rather than you reading into it what you want to see?

Has the Canadian or Osborne specifically said they want to shrink the sector?

If that was the aim then I think the 3% additional stamp duty would have been 10%. At 3% its mostly raises tax at 10% it stops almost completely additional BTL which would rapidly shrink the sector.

chucknorris

What a lot of people are missing is that BTL's have been extremely profitable, and still are for most of us, of course I would rather have dodged the changes, but that's just life, you can't expect to get through things without the odd hiccup. I agree with cells, that it was more of a smash and grab, but also with Gen (to an extent) that it was also political too. I definitely think that it will restrict new landlords entering the market, at least in the way that they used to, but we might see a few more companies being formed.

There will of course be some culling of recent or heavily mewed landlords, but again that's just life, law of the jungle etc.