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Didnt Brown debase 'prudent' in 2007?

Id run a mile form any financial org using 'prudent' these days as its its normally a cover for doing something the total opposite.

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I can't speak with total confidence as the 'data collection methodology' involves checking every now and again on whether BM Solutions have updated their so-called "mortgage product guide" (link for latest) and then downloading it when they do. Nevertheless having had an eye on this since January 2015, the move from 2.49% to 2.69% in today's mortgage product guide is the first time I've seen them hike the 75% LTV, zero fee 2 year fixed rate mortgage. The following graph tracks progress since early 2016

image.png.4bfe83a7c300aa76e9756927b3a22c39.png 

Two things on this:

  1. Whilst the bump from 2.49% to 2.69% doesn't seem like much it would represent an 8% hike in borrowing costs for an interest-only borrower (and something like 90% of BTL mortgages are interest-only) when comparing financing on 15 February with the same finance on 16 February.
  2. We are still massively down on the buy-to-let mortgage interest rates prevailing during the rush of borrowing ahead of the SDLT additional residential property surcharge being introduced in April 2016. If these borrowers can refinance then they will because (as per these BM Solutions rates) they'll shave about 30% off their borrowing costs (going from 3.79% to 2.69%). Hence if we don't see the anticipated wave of remortgaging then that will be interesting.
Edited by Beary McBearface

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'I lost two job offers because of a mark on my file I didn't even know about': How a marker after a failed mortgage application left one jobseeker with 'DO NOT EMPLOY' on his file'

http://www.dailymail.co.uk/money/saving/article-5357525/Cifas-fraud-marker-meant-left-not-employ-status.html

'The interview was successful and he resigned from his previous role. All that was needed was background checks to be completed before he started the job the following months. 

The jobseeker thought this aspect would just be a formality as he had no criminal background or issue with his finances. 

So he was shocked when some days later he received a letter from the employer withdrawing its offer, saying checks had come back with the menacing wording: 'Do not employ'.'

Frankly, youd hope that leveraged investing in IO BTL would bar you from working in the financial services.
 
No blacks, no Irish, no dogs, no BTLers.
 

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6 hours ago, Beary McBearface said:

 

If there's to be cut-off point at which a buy-to-let lender that is too small for this thread then The Mansfield Building Society might be a good candidate for that line.

[snip great post]

Interesting to note that major lenders are shying away from this kind of lending even though Mansfield's entry would suggest that there's no overt conduct issue as far as the regulator is concerned. Also interesting to see that it's still the mutuals pioneering the most (ahem) 'innovative' buy-to-let mortgage lending. That always ends well.

Thankyou for that post. A friend sent me a link to that article! Great to have some stuff to fire back :)

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20 hours ago, Patient London FTB said:

Knock-on effect is South-East England LLs buying in much cheaper areas than before 

I think the effect will go somewhat further than that.

From Market commentary June 2017:

Quote

Since January, the Prudential Regulation Authority (PRA) has required lenders to stress test new lending by either 5.5%, or 2% above the pay rate, whichever is higher. Lenders had already prepared for this, and in some cases applied the stress tests in advance of the deadline. This makes it more difficult to sustain a highly-leveraged buy-to-let business model, with negative repercussions in regional markets with low rental yields such as London.

This is leading to a regional divergence in LTV of new lending. In London, the median LTV for remortgage loans has declined from around 65% in early 2014 to about 57% now. In contrast, Manchester’s median remortgage LTV has held roughly steady around 70% over the same time frame.

And from What next for buy-to-let? September 2016 (abridged):

Quote

Table 1: Impact of higher ICR and stressed mortgage rates on maximum LTV ratios for two-bedroom properties – % private rented stock in each LTV “bucket”

Maximum LTV sustainable 125% ICR & 4.5% stressed 125% ICR & 5.5% stressed 145% ICR & 5.5% stressed 155% ICR & 5.5% stressed
>10% equity 2% 14% 49% 65%

 

The bottom row of the table shows the percentage of rented housing where investors will have to put down 10% or more additional equity to take out a new loan. This is before paying the additional 3% stamp duty introduced from April this year. The analysis shows that new BTL loans will more likely be at an LTV ratio of between 55% and 70% with investors putting in an extra £25,000 to £35,000 of equity – and more in the lowest yielding and highest value housing markets.

Existing portfolio BTL landlords in areas with low rental yields, who have been extracting equity to fund new purchases, are going to have the most trouble remortgaging.

They are likely to face the highest ICRs (and 155% may not be high enough to meet regulatory requirements) because their total portfolio rental income is likely to have a relatively high tax liability.

They are also likely to have the least ability to meet the highest ICRs given their low yields and (because they've been extracting it for new purchases) relatively low equity.

The "extra £25,000 to £35,000 of equity – and more in the lowest yielding and highest value housing markets" that the CML imagines BTL landlords will be coughing up for new purchases may be the kind of sums that these landlords need to put down per property just in order to stay at the table (or at least not get trapped on their current lenders' SVRs).

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On 12/02/2018 at 12:36 PM, Beary McBearface said:

I am really curious about this development. As best I understand matters (could be totally wrong) this seems to be spinning out of the disposal UKAR made in 2018 (link) as there's no disclosure of a further sale on the UKAR website and there also doesn't appear to have been any chatter from the leveraged landlords between March 2017 and now about notification of their mortgages having been sold.

However as Topaz is just a servicer fronting for an investor then if the supposition that this is just the contiunation of the changes after the March 2017 sale then the owner of their mortgages could be Pru or Blackstone or even perhaps another company who has bought some of the ex-Mortgage Express mortgages from either Pru or Blackstone.

Because the portfolio guys who are active on PovertyLater and PovertyVibes are the first to bleat about anything it's not even clear if they've been singled out for special treatment or if in fact it is just a meaningless step in the process of shifting the mortgages from UKAR to their new home post sale and the portfolio guys are being swept along with the tide.

Confirmation that it's Blackstone and Prudential:

Quote

UKAR Update

19 Feb 2018

As announced in March 2017, Bradford & Bingley plc (part of UK Asset Resolution Limited), sold two separate asset portfolios comprising performing buy to let loans to Prudential plc and to funds managed by Blackstone.

The final stage of this transaction is now complete and the legal title to the loans included in the sale has transferred to Topaz Finance Ltd, an FCA regulated firm, who will manage the loans under the brands of Jasper Mortgages and Rosinca Mortgages.

All customers affected by the transaction are being contacted to update them on the change of ownership. A key consideration for this sale was the continued fair treatment of customers and there will be no changes to the terms and conditions of the loans as a result of this transaction.

ENDS

Notes to Editors

  • Approximately 104,000 loans originated by Bradford & Bingley and Mortgage Express were included in the sale.
  • Prudential plc and funds managed by Blackstone own the beneficial interest in the loans and have separately appointed Topaz Finance Limited to act as the legal title holder and master servicer.

(Also covered in Letting Agent Today.)

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The Lloyds Group annual report for the year to 31 December 2017 was released this week.

Lloyds Group shed some lending in 2013 when the Lloyds TSB split went through there is a dip in the data series at that point,

image.png.e796aa0dbcda3b3c785192171b6bba39.png

As best as I can see there are no disclosures in the Lloyds annual report and accounts for buy-to-let lending in the report for the period ending 31/12/2008 (the figure for that year in the series above comes from the report for the period ending 31/12/2009) so that's as far back as we can go from the annual reports.

If you state this in terms of the percentage of the book that is buy-to-let then the issue with the TSB split is dealt with but you miss out on the fact that the whole secured lending book shrunk from £349bn (31/12/2008) to £323bn (31/12/12) even before the TSB split and then continued to shrink from the post-split £302bn (31/12/2013) down to £292bn (31/12/2017).

Up until the half-year report of 30/06/2016 the share of the book that was BTL grew as the BTL stock grew whilst the total book shrank. As the graph shows it then got stuck at 18.5%.

 

image.png.258f224d142b286d77560142a7f45239.png

For the first time since they've been making disclosures, the share of the Lloyds book which is BTL fell. It's now 18.2%

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2 hours ago, Beary McBearface said:

The Lloyds Group annual report for the year to 31 December 2017 was released this week.

Lloyds Group shed some lending in 2013 when the Lloyds TSB split went through there is a dip in the data series at that point,

image.png.e796aa0dbcda3b3c785192171b6bba39.png

As best as I can see there are no disclosures in the Lloyds annual report and accounts for buy-to-let lending in the report for the period ending 31/12/2008 (the figure for that year in the series above comes from the report for the period ending 31/12/2009) so that's as far back as we can go from the annual reports.

If you state this in terms of the percentage of the book that is buy-to-let then the issue with the TSB split is dealt with but you miss out on the fact that the whole secured lending book shrunk from £349bn (31/12/2008) to £323bn (31/12/12) even before the TSB split and then continued to shrink from the post-split £302bn (31/12/2013) down to £292bn (31/12/2017).

Up until the half-year report of 30/06/2016 the share of the book that was BTL grew as the BTL stock grew whilst the total book shrank. As the graph shows it then got stuck at 18.5%.

 

image.png.258f224d142b286d77560142a7f45239.png

For the first time since they've been making disclosures, the share of the Lloyds book which is BTL fell. It's now 18.2%

Good analysis,

In terms of the mortgage book falling overall, I think I heard somewhere that LBG was writing less business overall, but at higher margins. With a strong brand like Halifax, it is pretty easy to write a good number of new mortgages without being at the top of the best buy tables.

In terms of the BTL figures, I would guess one or more things. One could be that they hit their own internal risk appetite at the end of 2015 of BTL as a percentage of the overall mortgage book or are in the "amber" zone.

In addition, there may have been pressure from PRA to limit the growth of the BTL mortgage book - it is notable that the growth in the BTL book stops dead at the same time as the PRA consultation paper on BTL underwriting was released. Perhaps they took one look at it, and could see that the game was up.

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Bloomberg's number for the 2 year gilt yield, UK Govt Bonds 2 Year Note Generic Bid Yield GUKG2:IND has been heading up pretty sharply of late.

  image.thumb.png.d825638ce1c9535df3a511196dc01247.png

The two year swap rate is also going up and has added 50 basis points since this time last year reaching 1.06 yesterday (0.575 on 28 February 2017). With the Bank of England's various supplies of cheap money to lenders being wound down from here on out this is going to have to feed through to higher rates on 2 year fixed rate BTL mortgages sooner rather than later.

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8 minutes ago, Beary McBearface said:

Bloomberg's number for the 2 year gilt yield, UK Govt Bonds 2 Year Note Generic Bid Yield GUKG2:IND has been heading up pretty sharply of late.

  image.thumb.png.d825638ce1c9535df3a511196dc01247.png

The two year swap rate is also going up and has added 50 basis points since this time last year reaching 1.06 yesterday (0.575 on 28 February 2017). With the Bank of England's various supplies of cheap money to lenders being wound down from here on out this is going to have to feed through to higher rates on 2 year fixed rate BTL mortgages sooner rather than later.

The swap rate is the one used to price the 2 year fix mortgage so we should expect to see that heading up shortly. 

The 10 year gilt is at 1.50 - very low but triple where it was in August 2016.

The increase in yields on government bonds is likely to continue and as the risk free rate gets higher so inevitably will the yield expected on other assets, such as BTL. If rents can't rise then house prices must fall. 

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Rents MUST rise then.

whatever your fancy graphs say is kind of irrelevant to what my spreadsheet says pal, one simple equation in my line of business:

 

profit - costs = RENTS

 

First figure is set at whatever you need it to be, second figure is the curveball in that you don’t have much control over it, the ace in the pack is the right hand side of the equation or what I call “the output variable” which is fancy mathematical speak for the bit you FUDGE to make sure someone else is paying for your retirement. In this case a load of scumbag tenants.

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31 minutes ago, thewig said:

Rents MUST rise then.

whatever your fancy graphs say is kind of irrelevant to what my spreadsheet says pal, one simple equation in my line of business:

 

profit - costs = RENTS

Spot on. This is exactly what will happen. In fact the rents will rise much as they fell  between 2008 and 2018 as leveraged landlords' mortgage interests costs were falling. How well we all recall the decade long rent crash that has made the last decade a veritable land of milk and honey for the denizens of the private rented sector.

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Skipton going balls deep into BTL lending, from its results out today

£824.1m, or 18.4%, of the Group's gross lending during the year was on buy-to-let mortgages (2016: £588.0m or 14.8%);

The Group net interest margin reduced to 1.10% (2016: 1.18% (restated)), whilst net interest income increased to £220.6m (2016: £215.6m (restated)), an increase of £5.0m (or 2.3%)

The Society drew down £1.1bn of funding under the Government's Term Funding Scheme (TFS) during the year (2016: £0.3bn) and at the end of the year had drawn a total of £1.4bn under the scheme (2016: £0.3bn). In addition the Society repaid the outstanding funding from the Government's Funding for Lending Scheme (FLS). The amount outstanding at the end of 2016 was £1.0bn;

Edited by Patient London FTB

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1 hour ago, Patient London FTB said:

Skipton going balls deep into BTL lending, from its results out today

£824.1m, or 18.4%, of the Group's gross lending during the year was on buy-to-let mortgages (2016: £588.0m or 14.8%);

The Group net interest margin reduced to 1.10% (2016: 1.18% (restated)), whilst net interest income increased to £220.6m (2016: £215.6m (restated)), an increase of £5.0m (or 2.3%)

The Society drew down £1.1bn of funding under the Government's Term Funding Scheme (TFS) during the year (2016: £0.3bn) and at the end of the year had drawn a total of £1.4bn under the scheme (2016: £0.3bn). In addition the Society repaid the outstanding funding from the Government's Funding for Lending Scheme (FLS). The amount outstanding at the end of 2016 was £1.0bn;

Ahh Skipton.

The bank who put Skip in banking ...

Chatting around, its not just BTL. Skipton were very very keen on doing very high LTV loans in he years between 2007 and MMR.

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Really good piece on FT Adviser, Perfect storm ahead for challenger banks, 2 March 2018

FT Adviser are presumably as snippy about their journalism being cut and paste as the FT itself so I'll restrict myself to a single sentence as fair use:

Quote

A representative of challenger bank Shawbrook, which only provides buy-to-let mortgages and remortgage products, said while the Bank of England schemes have provided funding at attractive levels for banks, "this benefit has mainly been passed through to clients in the form of aggressive price competition".

The proportion of the lenders' funding that is customer deposits is much greater for the big lenders than it is for the challengers, particularly so for some of the buy-to-let lenders in the 'challenger bank' sector.

People are bone idle about moving savings so even if the Bank of England raise rates (or the wholesale money markets anticipate such a rise) the funding costs of the big lenders don't jump up in step; it doesn't matter what the markets do, if your gran leaves £20k on deposit with Lloyds then their funding cost on that £20k remains whatever they are paying on sight deposits. Eventually the rates paid on sight deposits will track up, in theory, but looking at the recent data the emphasis should definitely be placed on the "in theory" and "eventually" parts of that analysis.

The more recent mortgage lending on the challengers' books will have been written so that it washes its face on a 5.5% mortgage rate and therefore we're not going to see scorched earth overnight but if the pricing power of specialists lenders combines with their rising funding costs you could see the mortgage rates paid by the portfolio guys at 5%-6% whilst owner-occupiers are still paying 3%.

If those higher rates paid by buy-to-let investors combine with falling prices the portfolios will become an investment that doesn't wash its face and is making capital losses day-to-day.

 

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5 minutes ago, Beary McBearface said:

The more recent mortgage lending on the challengers' books will have been written so that it washes its face on a 5.5% mortgage rate

What about the stuff written in early 2016? Any idea how many 2-year deals are coming to an end and now need to be assessed on much harsher terms? 

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4 minutes ago, Patient London FTB said:

What about the stuff written in early 2016? Any idea how many 2-year deals are coming to an end and now need to be assessed on much harsher terms? 

Non-trivial number I'd have thought. The December 2016 CMLThe profile ofUK private landlords report has a little something on incomes.

image.png.cd877aa457e800316861f5974e3f28ea.png

The 2018-2019 tax rates will mean that anyone making over £46,350 gets caught by a 145% ICR which did not apply back in April 2016. My eyeball of the chart would make that about 70% of them. Game on.

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8 minutes ago, Beary McBearface said:

Non-trivial number I'd have thought. The December 2016 CMLThe profile ofUK private landlords report has a little something on incomes.

It'd be interesting to see the interaction with the lack of rental growth in London since early 2016 too. 

"Sir, I'm afraid our ICR is now 145%, so we can't roll over your entire £x loan. We can only lend you £(0.9x), unless you're able to show us you can top up your rental income with your personal income?" 

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27 minutes ago, Beary McBearface said:

Non-trivial number I'd have thought. The December 2016 CMLThe profile ofUK private landlords report has a little something on incomes.

image.png.cd877aa457e800316861f5974e3f28ea.png

The 2018-2019 tax rates will mean that anyone making over £46,350 gets caught by a 145% ICR which did not apply back in April 2016. My eyeball of the chart would make that about 70% of them. Game on.

Interesting chart.

Id always assumed thst io btl gave relatively low incomes to leverage up like loons.

Seems i was wrong.

I bet theres a good few solicitors in that high income bracket. Bit of a problem as they cannot work if bankrupt.

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