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The sale of the Bradford & Bingley mortgage book sitting in United Kingdom Asset Resolution was confirmed in the Budget. Source: Budget 2016 Policy Paper Bradford & Bingley's buy-to-let lender, Mortgage Express, accounts for most of the loan book. Source: UKAR B&B 2015 annual report There's some 'interesting' commentary in the trade press. Source: Basel proposals could ‘compromise’ Bradford and Bingley asset sale, Mortgage Strategy, 18 March 2016 There is an alternative perspective to the IMLA argument, which is that if you are going to shut down the BTL industry, you ought to get shot of your £18bn worth of crappy BTL loans at whatever price the market can bear. The NRAM book was sold in 2015 to Cerebus who are, to use the technical parlance, grown-ups well capable of arranging their own financing and taking a view about the interest they'll have to pay on financing any funding, even after BCBS risk-weights alter the capital costs attached to any lending by the banks to them. I always wonder who this weak as shit IMLA logic is aimed at. Anybody with any familiarity with even the most rudimentary elements of the situation surely just laughs at it, and anybody ignorant enough to be taken in by it wouldn't be interested. Hence we can paint a situation whereby come 2018 all the PovertyLater Mortgage Express mortgages are held by Cerebus. The Court of Appeal has upheld the West Brom decision and Cerebus can bump the mortgages to something aligned with market SVRs. BCBS risk-weight implementation is coming down the tracks and market SVRs have risen markedly above 2016 levels of about 5%, and of course, you've already lost most of the tax deductibility of your mortgage interest. Balance of probabilities, all of this will happen. Sell now, sell everything.
How will UKAR handle property disposals from portfolio landlords in light of the recent Budget? It seems to me that the most aggressively leveraged landlords, who will be worst affected by the recent Budget changes to how tax relief on BTL mortgage interest and taxable rental income are calculated, are also highly likely to have mortgages tied up in UKAR. The 'bad banks' whose mortgage books UK Asset Resolution was set up to run down were in part 'bad' precisely because they had been aggressively lending into the buy-to-let sector: That being the case it would be surprising if the most aggressively leveraged landlords had not taken out mortgages with these lenders prior to them being rolled into UKAR. In fact, aggressively leveraged landlords are by definition subprime property speculators - betting everything on house price appreciation at very high leverage, on thin margins and with no real repayment plan - and so in some respects they are the quintessential remaining UKAR borrower, being the least likely to have been able to remortgage elsewhere. In light of the recent Budget many of these aggressively leveraged landlords will be looking at negative cash flows in the not too distant future and may as a result be looking to dispose of some or all of their property portfolios. They may encounter several issues in relation to this, not least of which being that aggressive mortgage equity withdrawal may mean that they now lack the equity to pay their CGT (h/t Bland Unsight and Frizzers), but those with mortgages tied up in UKAR may have additional problems. The issue is clauses like this one from Mortgage Express, that allow UKAR to enforce the repayment of all outstanding mortgages on the disposal of a single property: Mortgage Express Terms & Conditions (h/t little fish) Aggressively leveraged landlords might therefore find that they have placed themselves in a position where they cannot even safely dispose of those properties on which they have little or no Capital Gains Tax due, as doing so would allow UKAR to force the sale of other properties (perhaps with unpayable CGT bills, in negative equity, or in concentrated areas flooding the local housing market and depreciating values). UKAR have shown every inclination to enact these clauses in the past, especially in regards to unsustainable portfolios: