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A New Lever For The Fsa/boe?

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What if the FSA or BOE were to legislate that all new BTL mortgages had a dynamic LTV ratio and those mortgages has enforced margin calls. (And transition all existing BTL mortgages onto this)?

This would give them another lever to manage the house market separate from interest rates, and separate from owner-occupier LTVs.

If this were implemented, as I understand it, then several things can happen, if we find that prices are rising because BTL landlords are piling into the property market and bidding up the prices (and pricing out FTBs) then the FSA/BOE lower the LTV say from 70-60%, this review could be done on a monthly or quarterly basis. The BTL (if they breach that limit) then has 30 days to either deposit the requisite capital or put the property on the market and sell it (a slightly longer time for the sale accepted). Some consideration need here around the get out clause 'Oh, I put it on the market (at a very high price), but it's not selling' - so perhaps a charge for breach of margin requirements to encourage them to sell.

This would help to transfer properties from BTL to FTB.

It would also be able to be used to encourage investment into property if required, i.e. increase the LTV back up and the investors are encouraged back into the market. (Not a problem I see happening for quite some time!!)

In this way perhaps we have another lever to control the ratio of rented vs Owner-Occupied housing.

Having separate LTV for BTL and Owner occupier (and in the case of BTL enforced margin calls) seems like a fairly useful lever to have. I.e. Differential Steering (Think of it like the way tracks work on a tank, you can make it turn on one direction or the other by independently controlling the speed in which one set of tracks turns relative to the other).

Thoughts?

Gary

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Firstly a lot of BTL mortgages themselves already have a loan to value clause in them. These don't really do much in a rising market.

Secondly, you could not say for certain that a general rise in prices was due to BTL activity. Maybe on a regional basis you could say for certainty.

Thirdly, if BTL was pushing up property prices, their existing property portfolio would already have seen a lowering of LTV by virtue of the increased valuations. Traditionally this is what has allowed the idiots to refinance and purchase further properties. It would however make further purchase not so easy due to the reduced LTV requirements.

Just my initial thoughts.

EDIT: The casual BTL brigade (one or two properties) may well avoid taking out a BTL mortgage in such a situation to avoid these levers.

Edited by Driver

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Firstly a lot of BTL mortgages themselves already have a loan to value clause in them. These don't really do much in a rising market.

Secondly, you could not say for certain that a general rise in prices was due to BTL activity. Maybe on a regional basis you could say for certainty.

Thirdly, if BTL was pushing up property prices, their existing property portfolio would already have seen a lowering of LTV by virtue of the increased valuations. Traditionally this is what has allowed the idiots to refinance and purchase further properties. It would however make further purchase not so easy due to the reduced LTV requirements.

Just my initial thoughts.

EDIT: The casual BTL brigade (one or two properties) may well avoid taking out a BTL mortgage in such a situation to avoid these levers.

This factors into a second point I was going to make, the implicit advantage of being able to use housing equity as equity to buy more housing.

That is if I have 10k and put that towards a 100k investment property I'm at 90% LTV, assuming that is the max ratio, then then properties rise by 12.5% I'm down to about 80% LTV and can load up with another one.

As such the suggestion above perhaps acts as one lever to impact this, if the market is getting frothy then decrease max LTV and you effectively prevent the investor just using that equity for more purchase.

Perhaps there is also a way of decreasing the amount of that 'equity' build up as being useable to obtain more credit, for example some bubble index that tracks HPI vs Wage Inflation/CPI/RPI, this index is a form of indication of how much properties are moving from fundamentals, and use this as a divisor when calculating the LTV for BTL mortgages.

With regards to small BTLs avoiding taking out BTL, I would suggest that any mortgage on an investment property *must* be a BTL mortgage... oh, wait, we have that, perhaps we should enforce it. (Perhaps a Landlord registry which is linked to the banks BTL to help identifiy fraud, this would also be helpful for HMRC when it comes to locating 'accidental' underpayments of tax from BTL and accidental underpayment of CGT... oh wait that was also proposed and rejected).

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Why should we have BTL mortgages in the first place?

I wonder how much of House Price Inflation and supply and demand questions is down to the introduction of these mortgages being made available for the the mass market to speculate on.

I have nothing against people who want to buy a property in order to rent it out, but feel that this should only be possible by:

1/ Buy it outright with their own savings or investments or

2/ Remortgage of their own residential property in order to buy another property outright.

To prevent further borrowing, each person should only be able to have one "active" mortgage running at a time.

Thoughts?

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Why should we have BTL mortgages in the first place?

I wonder how much of House Price Inflation and supply and demand questions is down to the introduction of these mortgages being made available for the the mass market to speculate on.

I have nothing against people who want to buy a property in order to rent it out, but feel that this should only be possible by:

1/ Buy it outright with their own savings or investments or

2/ Remortgage of their own residential property in order to buy another property outright.

To prevent further borrowing, each person should only be able to have one "active" mortgage running at a time.

Thoughts?

Just remove the tax subsidy by allowing all interest to be deducted against rent..without this BTL would not work where highly leveraged

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Just remove the tax subsidy by allowing all interest to be deducted against rent..without this BTL would not work where highly leveraged

BTL mortgages are already not granted if the rental income doesn't exceed the mortgage repayment on an interest only basis by a factor.

I still don't know why we need BTL mortgages.

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BTL mortgages are already not granted if the rental income doesn't exceed the mortgage repayment on an interest only basis by a factor.

I still don't know why we need BTL mortgages.

Is it because there is a large proportion of MPs receiving rental income?

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Is it because there is a large proportion of MPs receiving rental income?

Mmmn - good point. That makes it difficult.

But it would be good if public opinion could be swayed so that they either have to buy the properties outright (if they want to continue to rent it out) or sell - so that they comply with my theory that everyone should only be allowed to have one active mortgage running at any one time.

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Just remove the tax subsidy by allowing all interest to be deducted against rent..without this BTL would not work where highly leveraged

This too.

BTL mortgages are already not granted if the rental income doesn't exceed the mortgage repayment on an interest only basis by a factor.

I still don't know why we need BTL mortgages.

Because otherwise how would they get me to pay for their pension :huh:

Over the long term I do see value in providing finance for property investment because I do see value in having owner-occupier and (private) landlords, but at the moment we're very very over invested in that area.

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  • 284 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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