Joboxer

Btl's Back........

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Just been told by a mortgage advisor that BTL mortgages can be had at 25% deposit, interest only, no salary check. Apparently they are being offered by an offshoot of the Nationwide. They are still not regulated by the FSA. Crazy.

Edited by Joboxer

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What are the Nationwide playing at? This does chime with the idea that they've lost the plot, put forward by a whistleblower, here.

The Nationwide's BTL vehicle, The Mortgage Works (UK) Plc, appears to have put an extra £3bn of mortgages on their books between March 2010 and March 2011, taking them from £9bn to £12bn. (Some kind soul has left a free access link to a scanned copy of their March 2011 financial statements lying around on the web.) Presumably the vast majority is BTL as The Mortgage Works are a specialist BTL lender.

UK gross lending was about £150bn for the year to March 2011, if 20% of this was BTL, then gross BTL was about £30bn - so Nationwide are 10% of the BTL market.

The other big player is BM Mortgage Solutions, aka Birmingham Midshires, swallowed by Halifax, then swallowed by Lloyds TSB in that notable shotgun wedding.They are half the BTL lending market these days,according to Mortgage Strategy.

It seems that the biggest players in BTL are a clueless mutual and a zombie. Not sure they are the best people to judge whether it's time to get the checkbook out or not. Good luck to them. I'm not sure either has got the balance sheet to keep this bubble inflated. Presumably Nationwide are going to get their fingers burned and the good people at Lloyds Group are going to find yet another way to pour taxpayers money down the drain.

Given that through UKRAR's NRAM and B&B loan books we already have a sweet £25bn of BTL loans already, it seems that the biggest BTL player is the government, by a country mile.

So it goes.

Edited by ChairmanOfTheBored

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What are the Nationwide playing at? This does chime with the idea that they've lost the plot, put forward by a whistleblower, here.

The Nationwide's BTL vehicle, The Mortgage Works (UK) Plc, appears to have put an extra £3bn of mortgages on their books between March 2010 and March 2011, taking them from £9bn to £12bn. (Some kind soul has left a free access link to a scanned copy of their March 2011 financial statements lying around on the web.) Presumably the vast majority is BTL as The Mortgage Works are a specialist BTL lender.

UK gross lending was about £150bn for the year to March 2011, if 20% of this was BTL, then gross BTL was about £30bn - so Nationwide are 10% of the BTL market.

The other big player is BM Mortgage Solutions, aka Birmingham Midshires, swallowed by Halifax, then swallowed by Lloyds TSB in that notable shotgun wedding.They are half the BTL lending market these days,according to Mortgage Strategy.

It seems that the biggest players in BTL are a clueless mutual and a zombie. Not sure they are the best people to judge whether it's time to get the checkbook out or not. Good luck to them. I'm not sure either has got the balance sheet to keep this bubble inflated. Presumably Nationwide are going to get their fingers burned and the good people at Lloyds Group are going to find yet another way to pour taxpayers money down the drain.

Given that through UKRAR's NRAM and B&B loan books we already have a sweet £25bn of BTL loans already, it seems that the biggest BTL player is the government, by a country mile.

So it goes.

Could be a long term trend..

Ultimately, lending to someone who it into BTL as a business venture - and so may have a few dozen properties with rental coverage at least 130% of mortgage interest - is probably far safer than lending to a few dozen owner-occupiers. After all, evicting an owner occupier is the bank's problem (probably quite costly and drawn out) whereas having a landlord as middleman means that the non-paying tenant gets evicted and replaced with a payer.

Basically, high rents and low IRs make BTL lending seem reasonable. The fact that the whole raison d'etre of building societies is opposed to BTL dosen't seem to ocur to the managers of Nationwide, though..

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Could be a long term trend..

Ultimately, lending to someone who it into BTL as a business venture - and so may have a few dozen properties with rental coverage at least 130% of mortgage interest - is probably far safer than lending to a few dozen owner-occupiers. After all, evicting an owner occupier is the bank's problem (probably quite costly and drawn out) whereas having a landlord as middleman means that the non-paying tenant gets evicted and replaced with a payer.

Basically, high rents and low IRs make BTL lending seem reasonable. The fact that the whole raison d'etre of building societies is opposed to BTL dosen't seem to ocur to the managers of Nationwide, though..

Yup. I've mentioned this on the site before. When given a choice between lending to a BTL landlord or an FTB, the risk is with the FTB.

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Yup. I've mentioned this on the site before. When given a choice between lending to a BTL landlord or an FTB, the risk is with the FTB.

for now.

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for now.

+1

Accepted that this move from owner-occupiers to renters might be what the board at Nationwide consider a trend, and will allow them to generate some profits for the next three years, provided nothing untoward happens, but doesn't it just make it the same thing again, i.e. banks/quasi-banks ignoring credit risk by assuming that house prices don't go down that much very often. A reasonable assumption under certain conditions, but not so reasonable sitting on top of the mother of all credit bubbles.

Nationwide's assumption must be that a 25% equity cushion is going to be enough to soak up any losses and perhaps more importantly from Nationwide's point of view, they have to do something with the money and all they can do is lend, so they have to lend to someone.

If they are a mutual and they have more reserves than they need to conduct their business, surely there is something better that they could do with the money?

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+1

Accepted that this move from owner-occupiers to renters might be what the board at Nationwide consider a trend, and will allow them to generate some profits for the next three years, provided nothing untoward happens, but doesn't it just make it the same thing again, i.e. banks/quasi-banks ignoring credit risk by assuming that house prices don't go down that much very often. A reasonable assumption under certain conditions, but not so reasonable sitting on top of the mother of all credit bubbles.

Nationwide's assumption must be that a 25% equity cushion is going to be enough to soak up any losses and perhaps more importantly from Nationwide's point of view, they have to do something with the money and all they can do is lend, so they have to lend to someone.

If they are a mutual and they have more reserves than they need to conduct their business, surely there is something better that they could do with the money?

it's the old hammer / nail thing - their business processes are geared towards mortgage lending, so internal company politics steers them towards mortgage lending

I wonder what happened to YBS / Accord BTL mortgages - are they scaling back? they were really going for it...

however, whereas YBS is in Bradford, Nationwide is in Swindon, I wonder how much their directors sense the housing market pain in the same way northern organisations would?

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What are the Nationwide playing at? This does chime with the idea that they've lost the plot, put forward by a whistleblower, here.

So it goes.

Nationwide, is a shadow of its former self, none of its products are competitive, since they started charging to use cards abroad there is nothing they can offer the customer that would make them want to stay with them...every financial product can be got for better elsewhere....also their products are not simple and easy they have many 'must do that, or this, to get this, or that' attached to them, like a bonus for one year, in the hope you forget so they can then make more out of you.....a mutual where the directors working at the top make and take the money, whilst their customers are only there to help them, while they themselves are growing poorer by banking with nationwide, people can only take so much, then they walk. ;)

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Just been told by a mortgage advisor that BTL mortgages can be had at 25% deposit, interest only, no salary check. Apparently they are being offered by an offshoot of the Nationwide. They are still not regulated by the FSA. Crazy.

I doubt it's as simple as it sounds. Probably put a charge against other assets held etc.

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+1

Accepted that this move from owner-occupiers to renters might be what the board at Nationwide consider a trend, and will allow them to generate some profits for the next three years, provided nothing untoward happens, but doesn't it just make it the same thing again, i.e. banks/quasi-banks ignoring credit risk by assuming that house prices don't go down that much very often. A reasonable assumption under certain conditions, but not so reasonable sitting on top of the mother of all credit bubbles.

Nationwide's assumption must be that a 25% equity cushion is going to be enough to soak up any losses and perhaps more importantly from Nationwide's point of view, they have to do something with the money and all they can do is lend, so they have to lend to someone.

If they are a mutual and they have more reserves than they need to conduct their business, surely there is something better that they could do with the money?

BTL lending allows lenders to prop up house prices and therefore their asset values until monetary inflation eventually works its way into the economy. It's their way of staying solvent until the crisis ends and they can start building up to the next crisis all over again. Rentier capitalism gone mad.

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If they are a mutual and they have more reserves than they need to conduct their business, surely there is something better that they could do with the money?

The last time I checked, Nationwide don't do business banking. My current account is with them and I thought that it might be a good idea for them to have my business account too. But no.

with nationwide, people can only take so much, then they walk. ;)

The question is: Where to?

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They could change their name.

Bradfordwide? Nation & Bingley?

Should I remove the £10 I have in my account?

Soon to be another part of a great big happy family of ex-mutuals at UK Asset Resolution: Fools'R'Us

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It's back like flared trousers! :o

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+1

Accepted that this move from owner-occupiers to renters might be what the board at Nationwide consider a trend, and will allow them to generate some profits for the next three years, provided nothing untoward happens, but doesn't it just make it the same thing again, i.e. banks/quasi-banks ignoring credit risk by assuming that house prices don't go down that much very often. A reasonable assumption under certain conditions, but not so reasonable sitting on top of the mother of all credit bubbles.

These last few years have seen many people worried about the security of their money in the banks. Even more wanting to chase better returns than deposit accounts.

Many people's belief in property hardly even dented, so I wouldn't be surprised if a lot of new BTL borrowing, or lending rather, has been written to new borrowers who were financially secure, for the reason in your quote below.

I'm remembering back to one of your posts from the other week. Hopefully not too much longer until the banks rein it all in, and we can have a massive house price crash, with the financial system better positioned to absorb it.

IMO the fact that there are still 5x multiple loans out there to prime borrowers is just a bit of risk management by the banks whilst they wait for the crash. The banks can't get out of the game but they can use new lending to split the coming loss between two borrowers rather than one.

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Hopefully not too much longer until the banks rein it all in, and we can have a massive house price crash, with the financial system better positioned to absorb it.

It's interesting. I was staggered to find out that BM Solutions is bragging about being half of the BTL market, but I suppose that BTL has become politically ambiguous as society falls to fighting with each other over the scraps [italics indicate hyperbole]! On the one hand you have prudent potential borrowers who are excluded from the market by high prices partially sustained by less risk averse BTL borrowers, on the other hand you have people without pensions who have gone into BTL, which should BTL fail as an investment vehicle will become insolvent people with no pensions. Bad politics either way.

Was reading The Great Complacence which linked some parts of the puzzle together. The government ownership of Lloyds Group, (and thus the Lloyds Group in house BTL lender, BM Solutions), vests through United Kingdom Financial Investments, (UKFI).

UKFI see themselves as basically private sector fund managers, encouraging the bank to create "shareholder value" so that the tax payer can sell off the government owned shares and everyone can go back to business as usual. Cast in this light, reckless lending was what generated the "shareholder value", [italics indicate fantasy], so more reckless lending will fix the situation. It's funny because it's true.

What's interesting is the at a chap called Gordon Kerr, is banging on about RBS being insolvent, see this paper. It revolves around a difference in accounting treatment between how RBS value their loan book under the IFRS's and how the Treasury value the loan book under UK GAAP and Company law - the Treasury insure RBS loan book through the Asset Protection Scheme, (APS). The long and short of it is a difference of £25bn between the two versions of the 2010 accounts, which should have reduced profits by the same amount. Saying "reduced profits" in this context is doublespeak - they acutally showed a loss of £1.1bn even with the arguably understated impairment charge on their comedy loans. [Weasel word "arguably" inserted for legal reasons! ;) ]

What's really interesting about that is that we only know about the RBS losses because the mechanism of the bailout means that we get the Treasury's view of the loan book. With Lloyds Group, the mechanism, (buying shares and then pretending you're a fund manager), means the Lloyds Group can still fail to provide for losses properly and nobody is any the wiser, (not that they would, ;) ).

Two things.

Firstly, with the benefit of hindsight, we can see how the market mechanisms have been distorted by the fact that there was no statute law capable of dealing with the crisis at the time of the crisis. The Government, Treasury and BoE had to make it up as they went along, with predictable results.

Secondly, I'm starting to feel that the future path is locked in. Someone is going to have to kill these zombies, sooner or later, because the whole feasting on our flesh thing is a drag. An HPC will make the UK banks insolvent again, the Bank of England will use the Banking Act 2009 to smash them up. The appearance of endless government support that allows UK banks to borrow cheaply will end and with lending financed by deposits mortgage borrowing will become pricier again, keeping prices down till the next mess turns up.

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I was staggered to find out that BM Solutions is bragging about being half of the BTL market,

Impact on Halifax index? or does that exclude "business" lending on residential property?

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Impact on Halifax index? or does that exclude "business" lending on residential property?

Halifax Methodology, (retrieved 4th April 2012)

Although one hundred per cent coverage of all house purchase transactions financed by the Halifax is obtained, those transactions that do not constitute a fully consistent body of data for the purpose of house price analysis are excluded from the Indices. These exclusions primarily cover property sales that are not for private occupation and those that are likely to have been sold at prices which may not represent 'free' or 'normal' market prices, for example, most council house sales, sales to sitting tenants, etc. Only mortgages to finance house purchase are included; remortgages and further advances are excluded.

IMO if the BM Solutions data is in the Halifax data, then it's in the index. As to whether the Halifax data includes the BM data or not - that's another question, but you'd assume that it did. I guess you'd need to sent them an e-mail to get a straight answer.

I think an important take away message is that the only significance of this data is the way it feeds sentiment, in and of itself it appears to mean almost nothing especially as pointed out elsewhere now that transaction volumes are so low. Fortunately, even UK lenders are not making loans on Sentiment-to-Value ratios, (well not at the moment).

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Posted this in an another thread but from what i am seeing at least part of the rental market seems to be in trouble.

Just a comment on properties coming on the market. To get into the city centre the last half mile of my drive takes in an area close to the University, I would guess around 75% of property I pass is rented.

Over the last couple of weeks I have seen loads of For Sale boards appearing yesterday I counted the new ones 14 in total. Twelve of them have had To Rent boards outside for at least six months,two of these are going for auction,they are both ex corner shops at the end of roads both refurbished around a year ago and on the rental market since but no takers.

The amount of property to rent has at a guess also more than tripled over the last month, to the extent that blocks of 4 to 5 houses in a row are not uncommon.

Just to note most of the property is Victorian terraced and i would guess about half student lets.

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These last few years have seen many people worried about the security of their money in the banks. Even more wanting to chase better returns than deposit accounts.

Many people's belief in property hardly even dented, so I wouldn't be surprised if a lot of new BTL borrowing, or lending rather, has been written to new borrowers who were financially secure, for the reason in your quote below.

I'm remembering back to one of your posts from the other week. Hopefully not too much longer until the banks rein it all in, and we can have a massive house price crash, with the financial system better positioned to absorb it.

Been thinking about this some more. On reflection, from the banks' point of view late entrant BTL secured on the borrower's home is solid gold, especially if the borrower's home is mortgage free or almost mortgage free.

From the point of view of an individual bank, as previously discussed, BTL and new loans at high multiples are "averaging down", and thus good risk management.

If we look at things from the point of view of the banks in aggregate, BTL lending works like this:

For simplicity, imagine an OO who bought at £110k. They are now in arrears and the house will fetch £100k.

A BTL buyer enters into a transaction, purchasing the house for £100k.

Firstly, you crystallise the owner occupiers loss early, £10k in this example, and hence they will try to pay it back rather than acknowledge insolvency, so in due course the banks will see some or possibly all of that £10k paid back. (If they just let the loan go bad it would eventually reach a point where the OO walked away and acknowledged insolvency, so the £10k is great news - any of it coming back is great news.)

The BTL'er put down a £25k deposit against the £100k purchase, so the bank now has a £25k cushion against any further falls AND the BTL loan is secured against the BTL borrower's house, which means there is going to be more than enough equity to set the lender right even if the price of the £100k house falls to nothing, (provided that the BTL borrowers house - the one the BTL'er lives in i.e. their own house - can still be sold for more than £100k).

Seen like this BTL becomes a mechanism for banks to "draw down" on bubble equity that the repayment of mortgages has pushed out of their reach.

If there is someone you love, or even like, who is thinking about BTL, tell them to give it 12 months for a start. In the meantime, will someone please kill these zombies.

Edited by ChairmanOfTheBored

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