Any Chance Of Btl Being Regulated?

[Bland Unsight]

This FTAdviser piece, Regulators turn attention to ‘unsafe’ buy-to-let sector, 18 July 2014, sourcing the remark from (I'm guessing as the piece itself is a little sketchy) the 15 July 2014 Treasury Committee Hearing on the Bank of England June 2014 Financial Stability Report.

Donald Kohn, external member of the Financial Policy Committee, also told MPs that his macroprudential panel would keep a close eye on it, adding that the buy-to-let market was a ‘potential safety valve’ that might not be ‘completely safe’.

The Treasury float the regulation of BTL in its December 2009 consultation paper Mortgage regulation: a consultation. As we know, nothing came of it at that time. The responses to the consultation were published in the March 2010 paper Mortgage regulation: summary of responses, (you've got to wonder who dreams up these catchy titles).

Quoting the whole portion of Summary section of Mortgage regulation: summary of responses, (page 3), which addresses buy to let, (emphasis added):

Buy-to-let mortgages

1.6

Regarding the regulation of buy-to-let lending, the majority of respondents, representing both lenders and borrowers, agreed that some sections of the buy-to-let sector had been the

source of significant consumer detriment that could be prevented through regulation. However, many lenders and property professionals expressed concerns that the form of regulation

proposed could impose unnecessary burdens on the operation of the private rented sector. They and a number of consumer groups also argued that the proposed regulation may need further refinement to protect consumers fully from recent harmful practices. Mortgage regulation: summary of responses

1.7

The Government does not agree with those respondents who argued that these considerations mean that the buy-to-let sector should remain unregulated. A large number of respondents agreed with the Government that there is overwhelming evidence that the operation of some of the buy-to-let market has suffered from significant market failure and that this demands Government intervention. The Government remains committed to action to address these failures.

1.8

However, to address respondents’ concerns and in view of the importance of the private rented sector, the Government has decided to explore changes to the form of regulation proposed. Further consultation on such changes will follow after the conclusion of the current Treasury consultation on investment in the private rented sector, which closes on 28 April.

My gut feel for this is that the move to 75% LTV in the sector was a quid pro quo; the vested interests in the sector raised the bar a little on who could play, and as a result the government did not regulate, (this is pure speculation).

As I've argued before I think that late entrant BTL will turn out to be a money pit and only those who are very lucky with the timing and the geography will get out unscathed.

It certainly looks as if presently the Bank of England is turning a blind eye to the whole mess. However, with Osborne's pension money about to come on tap, can they continue to ignore the fact that if they are not careful a lot of naive investors may be about to be parted from a lot of the money that is supposed to keep them out of penury?

Let us say we take a 2015 vintage pensioner handing over a material portion of their savings to become a canny BTLer. Even if house prices don't fall, if there is nothing left after paying the mortgage, the letting agent's fees and all the rest, isn't the Bank of England setting up a situation where a non-trivial number of people may be locking up their savings in a investment vehicle that pays no dividend or perhaps requires them to chip in some of their pension just to stay at the table - a negative carry trade? Hardly a reasonable way to provide a retirement income. If house prices fall, even if only in real terms, it's even worse. You have an investment that pays no dividend and whittles away at your capital at a rate determined by the gap between CPI and HPI...

Hence, my question is, how can the Bank of England through either the FCA or FPC not do something to prevent this potential train wreck? The principal beneficiaries of this disastrous lending, if it continues unchecked, include the banks. The banks only have no risk because they have claim on the BTL and the 'investors' home. It is so cynical that you might as well call it what it is - predatory.

The heart of the predatory lending practices in the UK was lending people lots of money using bogus ideas of how there was no risk. In the 1997-2008 owner occupiers and BTLers were lured in with promises of rampant HPI forever. Since 2009 BTLers are being suckered in with nonsense ideas comparing so called "gross yields" to the money they get on their savings accounts.

And why are those savings rates so low? The Bank of England's Funding For Lending scheme.

And is that scheme still producing a flow of very, very cheap money into BTL? Yes it is.

When the regulator and the monetary authority are under the same roof, then the right hand had better have a damn good idea as to the consequences of the left hand's actions or the regulator may find itself complicit in the predatory practices of the regulated.

Left as it is, this is lose-lose for the Bank of England.

In order for the late BTLers to get out ahead, hence getting the Bank of England off the 'encouraging predatory lending' accusation hook, then BTLers must succeed in materially pushing house prices. If earnings are weak over the same period of time, owner occupiers will have to push themselves to the LTI limits to stay in the game, and that gives you financial instability in two ways. If recesssion hits, the OOers drawn in their spending horns and turn to living off mince. If house prices move down for any other reason, some of your negative carry trade BTLers sell up amplifying the downwards move in house prices. Hence if BTLers win, it comes at the price of financial instability, so the Bank of England loses.

If the BTLers lose, then the Bank of England are going to have a lot of explaining to do once the army of greying losers get around to trying to work out how it happened, especially when Mrs Marple and pals find out that in July 2014, when there was plenty of time to do something about it, an FPC external member was talking about safety valves that weren't safe - but doing nothing. Once they put two and two together and realise that what drove them out of cash (low savings rates) and drove them into BTL (cheap mortgage expenses compared to rents) were two sides of the same coin - the Funding For Lending scheme, brought to you by The Bank of England, who chose to keep BTL in the Funding For Lending scheme, even after they took owner occupier mortgages out - well, that is going to be a difficult day at the Treasury Committee - and the Bank of England lose again.

When you are in a hole, stop digging. The Bank of England need to turn the taps off BTL. They need to regulate it. And they need to do it now, before it is too late.

Edited August 8, 2014 by bland unsight

[Guest]

It certainly looks as if presently the Bank of England is turning a blind eye to the whole mess. However, with Osborne's pension money about to come on tap, can they continue to ignore the fact that if they are not careful a lot of naive investors may be about to be parted from a lot of the money that is supposed to keep them out of penury?

Isn't that exactly the aim of this policy? Rich tax-dodgers get more flexibility, and the middle class end up handing their pension savings back to the bank and ultimately into the pockets of the wealthy.

I very much doubt that a pensioner making a bad investment will join the dots. No-one is going to look at the policies that have shaped the wider economic environment, and there's no way anyone is going to point the finger at a specific scheme like Funding for Lending. Instead if BTLs take a haircut in a house price crash the government of the day will be indiscriminately blamed and voted out, ready for the other team to start bubble blowing again in order to help themselves to another generation's wealth on the next go round.

More likely we'll end up with yet more HPI and an entire generation will shrug their shoulders, catch one of the new trains to a newly 'prosperous' Doncaster, and embrace serfdom.

[TheCountOfNowhere]

MOre change of home ownership being regulated

[Bland Unsight]

...

I very much doubt that a pensioner making a bad investment will join the dots. No-one is going to look at the policies that have shaped the wider economic environment, and there's no way anyone is going to point the finger at a specific scheme like Funding for Lending. Instead if BTLs take a haircut in a house price crash the government of the day will be indiscriminately blamed and voted out, ready for the other team to start bubble blowing again in order to help themselves to another generation's wealth on the next go round.

More likely we'll end up with yet more HPI and an entire generation will shrug their shoulders, catch one of the new trains to a newly 'prosperous' Doncaster, and embrace serfdom.

There may be something in this - people will never work out what went wrong - never even realise that the banks found away for people to pay way more for the smaller, nastier houses just so the banks could make more money, and then, the overstretch of these invidious having precipitated a ruinous financial crisis, the government stood behind the banks and tried to make sure that this grim New Deal was accepted by the people as just the way things are.

However, I think that a generalised public disgust at the consequences of the idiotic lending and borrowing of the last twenty years is merely being forestalled. Enough people had been doing well out of it whilst it continued, so there was no possibility of consensus, just braggart winners and the dismissal of critics as losers. But it could not continue forever, and as the net secured lending statistics illustrate, it has been over since 2008. Extraordinary monetary policy can, and has, put things on hold, but it does not alter the reality that we have at some point to digest all the consequences of a colossal and ruinous credit boom.

I think one of the founding myths of this idiocy is that if nominal house prices rise in line with nominal GDP growth, then nothing can be seriously wrong. I suspect that the transformation of the economy following from the globalization of world trade and the mobility of capital mean that the things that actually underpin sustainable house price inflation (wage growth and sustainable changes in the availability of credit and the cost of servicing it) have been in a long decline, even whilst house prices raced ahead. If there had been no change in interest rates and no change in credit underwriting standards then perhaps nominal HPI would have fallen behind nominal GDP growth to reflect that the transformed economy was channelling a smaller share of the fruits of economic endeavour to the median household.

We've seen an absolutely insane loosening in credit underwriting standards in the run up to 2008 and a march to the zero-rate bound on interest rates. Something is very, very broken and the idea that the Bank of England can fix it without the wheels coming off at some stage seems to me to be if not ridiculous, certainly extremely optimistic.

In, short I think it's too early to say whether or not people will understand what happened or think about who they should blame, because the wheels haven't come off yet. Not to the extent that they can, given the ridiculous position we've reached.

In the end, it's not complicated. The banks lent too much and some people borrowed too much. Anyone can understand that, anyone can get angry about that once they understand that their falling living standards are, at least in part, a consequence of the actions of this "confederacy of dunces".

Edited August 9, 2014 by bland unsight

[cybernoid]

A large number of respondents agreed with the Government that there is overwhelming evidence that the operation of some of the buy-to-let market has suffered from significant market failure and that this demands Government intervention

Thats a novel thought. Government intervention in the face of market failure. The business of government, you might even say.

Rather different to Osbornes preference for government intervention to prevent markets working isn't it. Someone should let him know of this new form of radical thinking.

It all comes down to short termism for electioneering or a quick buck and/or incompetence and/or corruption in my view, that answer probably varies from VI to VI. I think recent BTL entrants already have their losses baked in, and I believe BTL will play a pivotal role in the drops to come. Those that can see have had plenty of time to get their houses in order (pun intended), and there are some ducks in a row today. Future BTL entrants might be saved from themselves fairly shortly via the loud signal of the beginnings of a correction...

[Wurzel Of Highbridge]

Anyone getting into BTL now believes that there is a severe housing shortage that will get worse every year as million sof immigrants pour in.

That's what they believe because that is what they are told by the media 'hosing shortage' + 'millions of immigrants' + 'house price inflation'. then on their own they come up with house price inflation and high rents = more profit than 1% in a bank account.

It's easy to see how people are suckered into this scheme. Ask them a sensible question like why did prices fall between 2008 and 2012 then they can't answer.

They belive in 'inflation' just like a Christian would believe in God and child would believe in Father Christmas. Even if the evidence is staring them in the face they just will not believe.

[winkie]

What can the banks do?....if they can't lend to those without money all they can do is lend to those will a bit of money...Buy to Lose....you lose your money.

[little fish]

If there was any intention of BTL being regulated would they not have just allowed it to be incorporated into CARRP? Then the EU would have been 'blamed' for it.

http://ec.europa.eu/internal_market/finservices-retail/credit/mortgage/index_en.htm

MEP Vicky Ford headed the negotiations to keep BTL as it is rather than fall into line with the rest of the EU who don’t have such a thing as individual BTL. Elsewhere in the EU individuals who mortgage properties to let have the mortgage applications treated as regulated residential purchases, rental income is not included.

http://vickyford.org/communications/latest-news/eastern-region-mep-wins-battle-to-save-buytolet/219

http://www.ftadviser.com/2013/01/31/mortgages/mortgage-products/the-regulation-of-buy-to-let-mortgage-advice-wDguYnIwqfDgSwUUrHDn6H/article.html

[Bland Unsight]

What can the banks do?....if they can't lend to those without money all they can do is lend to those will a bit of money...Buy to Lose....you lose your money.

It is crucial to realise that what was/is stopping them is sanity. They are looking (for the first time since the collapse in underwriting standards that the boom was coupled to) at the ability of households to service their mortgage and the banks are not assuming that HPI will quickly remove all risk. You are right to say that they cannot lend to those without money, but the reason that they cannot is because of their appraisal of the risks. It is not that they are forbidden from doing so.

Up until the Financial Stability Report there was nothing stopping the banks writing all new lending at 5.5x household incomes. Prior to Help to Buy 1&2, there was nothing stopping them writing new loans at 95% Loan to Value. Well nothing except the ludicrous levels of house prices relative to the earning of the people who wanted to buy them.

The banks want to be sure that they come out ahead if prices correct down by about 25%. Who can blame them? I feel the same way myself.

Edited August 9, 2014 by bland unsight

[Bland Unsight]

If there was any intention of BTL being regulated would they not have just allowed it to be incorporated into CARRP? Then the EU would have been 'blamed' for it.

http://ec.europa.eu/internal_market/finservices-retail/credit/mortgage/index_en.htm

MEP Vicky Ford headed the negotiations to keep BTL as it is rather than fall into line with the rest of the EU who don’t have such a thing as individual BTL. Elsewhere in the EU individuals who mortgage properties to let have the mortgage applications treated as regulated residential purchases, rental income is not included.

http://vickyford.org/communications/latest-news/eastern-region-mep-wins-battle-to-save-buytolet/219

http://www.ftadviser.com/2013/01/31/mortgages/mortgage-products/the-regulation-of-buy-to-let-mortgage-advice-wDguYnIwqfDgSwUUrHDn6H/article.html

My interpretation is that you can begin to identify two different sources of policy. Inside the independent Bank of England you have regulators. Sometimes the Bank may be committed to policy choices which conflict with the need to ensure responsible lending so sometimes there must be battles within the Bank as to whether a proposal to regulate will or won't become Bank policy, but nevertheless inside the Bank you have regulators as a source of policy.

Outside the Bank you have the Treasury.

The 2009 paper is Alistair Darling's HM Treasury, still in the maelstrom of bank blow ups that were following on from the 2008 crisis. Vicky Ford is a Tory MEP, doubtless acting in accordance with the policy wishes of Osborne's Treasury. Osborne has demonstrated through HTB with enormous clarity of intent that he is willing to trade financial stability later for a nice little housing boom now.

As best I understand matters, in 2009 the FSA lacked the authority to unilaterally start regulating buy-to-let. It would have needed the Treasury to give it a remit to do so. Further, as best I understand matters, the contemporary Bank of England has no corresponding limit on its authority to determine what is and what is not fitting for it to regulate. If the Financial Policy Committee decides that large volumes of interest only BTL are a financial stability risk, they can regulate, regardless of what Osborne wants or doesn't want.

I acknowledge that other posters have made some compelling arguments against my suggestion that the goals of the Treasury and the Bank conflict, (H/T Democorruptcy, 8Year), but the point of fact is that should the Bank get it into its head to do something, then Osborne couldn't stop them. The position for the FSA was almost the opposite - no matter how strongly they may have felt that regulation was needed, without Brown extending their remit, they could do nothing.

I honestly believe that over HTB we have in the rear view mirror little skirmishes of exactly this type between an independent regulator playing a long game, and an irresponsible politician looking at best 12-18 months down the line, (which is why Peston is asking cheeky questions and Carney is winking at him).

[winkie]

http://www.bbc.co.uk/programmes/p021nvpd

[cybernoid]

I honestly believe that over HTB we have in the rear view mirror little skirmishes of exactly this type between an independent regulator playing a long game, and an irresponsible politician looking at best 12-18 months down the line, (which is why Peston is asking cheeky questions and Carney is winking at him).

Interesting thought, but in the politicians defence it could be argued that in order to stay in government they must defend against an even more irresponsible opposition grabbing hold of the reins again, and doing that requires irresponsible behaviour on the way to an election. So wheres the gain, you might ask. The answer to that might be that they're naughty, but labour were very very naughty indeed. And without the brown clown this crisis wouldn't be anywhere near as keenly felt here as it is.

[Bland Unsight]

http://www.bbc.co.uk/programmes/p021nvpd

From the transcript:

Robert Peston, BBC:

You are saying 15% of mortgages at 4.5 times income is tolerable; the Treasury is saying no more Help to Buy mortgages at 4.5 times income in its Help to Buy scheme. Is the Chancellor being a bit irrational and hysterical about this?

[Laughter ]

Mark Carney:

The - I mean, I distinguish, as you're well aware, in the Help to Buy 2 scheme, mortgage guarantee scheme, in effect all of those mortgages are also high loan to value mortgages as well as being high loan to income mortgages. That's not the case across the broader set of mortgages. So there's double risk there, if you will, and the Chancellor's announcement today fulfils his pledge made at Mansion House - and we welcome it.

Source: FSR June 2014, Press Conference Transcript.

Mortgages carry risk? Who knew?

[Bland Unsight]

Interesting thought, but in the politicians defence it could be argued that in order to stay in government they must defend against an even more irresponsible opposition grabbing hold of the reins again, and doing that requires irresponsible behaviour on the way to an election. So wheres the gain, you might ask. The answer to that might be that they're naughty, but labour were very very naughty indeed. And without the brown clown this crisis wouldn't be anywhere near as keenly felt here as it is.

We can pose the counter-factual, for sure. Brown suffers the unavoidable shame of being the person at the tiller who definitely drove ship onto the rocks, and we should expect Red Team's political fortunes to suffer the consequences, but what about the Lawson boom? A tiddler in comparison but it shows that the Blue Team had in the past demonstrated a willingness to ride a credit bubble till something external tipped up to put an end to matters. Also, the UK was not unique internationally in riding the bubble that burst in 2008; far from it. Blue and Orange weren't in power so they can suppose that they've wouldn't have been so reckless. Whether or not that was the case is an open question. Surely the Red Team rode the bubble, partially at least, because of a politician's hard wired desire to hold on to power. Would other politicians have been so different? I'm dubious. How is it going with Osborne right now? He's trying to resurrect the damn thing with private households and his attempt to reduce net debt and narrow the deficit are all talk and no action - what do you think he'd be up to if he had the leeway to brazenly let these numbers go north a little whilst tossing out little titbits to favoured groups? (Help to Buy equity loans?)

[cybernoid]

I appreciate the use of Red and Blue makes a point about their presumed actions with the assumption that they're all alike, but Im not so sure about that. There is an ideological basis to them both, capitalism versus socialism is a gross oversimplification but the seeds of both are reflected by each. It is my belief that stoking the bubble and the doubling of public sector spending (in some areas at least) combined with other poor moves with an ideological basis made our lives far worse today than they would otherwise be if we had a government informed by capitalist/free market principles instead at the helm.

Of course we'll never know for sure.

The problem today is Osbornes continuation of Browns work. I don't think it would be there to continue had Brown not started it.

Edited August 9, 2014 by cybernoid

[Bland Unsight]

Can anyone straighten this out for me?

We have the press reporting headlines like this - FT Osborne gives BoE legal powers to limit mortgage lending 12 June 2014, shortly after the Mansion House speech where Osborne said as much

So today, I am giving the Bank new powers over mortgages including over the size of mortgage loans as a share of family incomes or the value of the house.

In other words, if the Bank of England thinks some borrowers are being offered excessive amounts of debt, they can limit the proportion of high loan to income mortgages each bank can lend, or even ban all new lending above a specific loan to income ratio.

And if they really think a dangerous housing bubble is developing, they will be able to impose similar caps on loan to value ratios – as they do in places like Hong Kong.

It’s important that decisions to use these powerful tools are made independently of politics by the Bank of England.

Source: Mansion House speech, 12 June 2014

And Carney reading from the same hymn sheet

The FPC has a wide range of other tools if further action is justified. We can direct lenders to raise capital held against mortgages or against all credit. Thanks to the FCA, we are now able to recommend a tougher

interest rate stress to which new borrowers are subjected when banks assess affordability. We can also make prudential recommendations about the share of high loan to income, loan to value and long tenor mortgages in banks’ and building societies’ new lending.

In this regard, I applaud the Chancellor’s intention to grant the FPC additional directive powers in relation to these aspects of mortgage portfolio composition.

Source: BoE

But what about the timings. Superficially it looks as if Osborne's blessing precedes the 4.5x 'soft' cap in the June 2014 FSR, but the choices must have been made weeks before the FSR is published on 26 June - only a fortnight after the Mansion House speeches. Hence Carney and the Bank are imposing the caps via "guidance" on the basis of the powers that they already have as per their remit (captured by the Financial Services 2012 Act and the remit letters) and working towards recommending that the Treasury in due course grant the "powers of direction" in future, which is what Osborne is actually committing to in the Mansion House speech.

Sure enough you have the PRA consulting on the implementation of this "guidance" presently. On the granting of powers of direction, the only journalism I can find is this piece on CentralBanking.com (I'm not making it up), Financial Policy Committee angles for full powers over UK leverage ratio regime, quoting from the piece.

The FPC said it was "minded to recommend to [the] Treasury that it be granted powers of direction over all components of the leverage ratio framework that are not harmonised under [EU] legislation", as it launched a final consultation on the framework's design, set to be unveiled in November.

The FPC also suggested it be given directional rather than recommendatory powers over the "design and setting" of the framework's various components, and that these should apply "as soon as practicable" to "help mitigate any potential financial stability risks over the next few years".

Direction powers would allow the FPC to apply and adjust specific macro-prudential tools in a bid to make policy implementation more coherent, accountable and efficient, the committee said. "Direction powers would allow the FPC to set/adjust the leverage ratio and target vulnerabilities in a timely and expeditious manner," the committee argued, adding such powers would be associated with stronger parliamentary scrutiny and accountability.

Hence it would appear that the present changes are taking place based on the soft power of the Bank of England - i.e. they issue guidance and the banks jump, but the Bank of England is angling for so-called "directive powers", where presumably the FPC instructions will exist in a legal framework where there are legally determined sanctions that follow from the banks not doing what they are directed to do. Still, November is November. They'll be a lot of water under the bridge between now and then - but it will be interesting to see if the Bank of England actually get independent authority (subject to suitable political scrutiny, natch) to decide how they operate their BTL "safety-valve", including perhaps LTI caps on the BTLers taking out the loans?

[Venger]

I appreciate the use of Red and Blue makes a point about their presumed actions with the assumption that they're all alike, but Im not so sure about that. There is an ideological basis to them both, capitalism versus socialism is a gross oversimplification but the seeds of both are reflected by each. It is my belief that stoking the bubble and the doubling of public sector spending (in some areas at least) combined with other poor moves with an ideological basis made our lives far worse today than they would otherwise be if we had a government informed by capitalist/free market principles instead at the helm.

Of course we'll never know for sure.

The problem today is Osbornes continuation of Browns work. I don't think it would be there to continue had Brown not started it.

The hpi since 1997 is of another order of anything that's ever gone before. And there appears to have been such a coarsening towards how much it's worth/hpi, and such a dumbing down.

I can only hope EA Dave / Osborne's continuation, is an attempt to wriggle out of it, drawing in new suckers, including collateral damage HTBs/not earning anything in the bank new BTLers, until banks are strong enough to allow for a fierce rebalancing. Yet all their positionining makes it seem highly unlikely.

We can have a hpc even with low rates, provided lending tightens up. BTLers are complaining about local authority licensing too - nice bit of shakedown imo, and an improvement in helping to ensure tenants aren't being housed in poor conditions.

[Bland Unsight]

I appreciate the use of Red and Blue makes a point about their presumed actions with the assumption that they're all alike, but Im not so sure about that. There is an ideological basis to them both, capitalism versus socialism is a gross oversimplification but the seeds of both are reflected by each. It is my belief that stoking the bubble and the doubling of public sector spending (in some areas at least) combined with other poor moves with an ideological basis made our lives far worse today than they would otherwise be if we had a government informed by capitalist/free market principles instead at the helm.

Of course we'll never know for sure.

The problem today is Osbornes continuation of Browns work. I don't think it would be there to continue had Brown not started it.

I tend to agree with you that Brown gave it a particular flavour. I think that one of the drivers of wage inflation was Brown inflating both the size of the public sector and its wages. Secondly, housing benefit and working tax credits must have increased the incomes that were available to pay rents. Both of these would have pushed and made it harder for private sector workers not in receipt of benefits to secure housing at a competitive prices, ceteris paribus. A government of a different political stripe might have conducted hugely different fiscal policies, with different consequences for different political constituencies, (in the non-geographical sense).

However, I think that both of the above 'levers' are not even in the game really. What drove the process was a death-pact, supposed mutual self-interest match up between the banks who wanted RoE growing at 20% YoY so needed lending to do likewise and innumerate households attracted to the idea of a house as a magic piggy bank. If your final bonkers prices are set by self-cert IO at 95% LTV then government policy is irrelevant. Prices are being set by the most outrageous lie told by the least cautious bull idiot to a bank that thinks it can't lose and has to win, and winning means writing moar mortgages. Unless the government steps in to stop it, the flavour of the policies they do enact aren't even a sideshow in terms of the level that debts and asset prices reach before it blows itself up.

I'd argue that by ideological disposition a more right-leaning government would have been less inclined to intervene in than the Labour government that actually didn't; after all Labour's rationale must ultimately have been at least informed by or rationalised to some extent by the idea that the market knew best, and that was straight out of the Gospel According to Milton Friedman, which itself had really captured the minds of the British political class in the period that gave us Thatcher's 1979 government*.

I'm left leaning but increasingly politically apathetic; I'm increasingly convinced by the arguments of the posters who draw attention to the the short-termism of policy and the "notgiveashitedness" (H/T northshore) of the political class. I think it's partly explained by the reality of globalisation, what another poster (I think hotairmail?) described as a massive deflation machine that TPTB have turned on, but don't know how to turn off. What looks like short-termism and incoherent policy is just a slowly dawning realisation that something is very wrong followed by blind panic. Seen day to day it looks like business as usual conducted by idiots. The fact that investors in Singapore are buying up new builds in Dalston for hundreds of thousands of pounds suggests that it is something new.

*No I'm not saying that it was Thatcher's fault; there was a perceived need for new ideas at that point, Friedman's brand of neo-liberalism was just one brand of one of those groups of ideas, Thatcher was one example of a politician who was in a mood to give them a try. If it wasn't her, it might just as easily have been someone else.

[cybernoid]

I'd argue that by ideological disposition a more right-leaning government would have been less inclined to intervene in than the Labour government that actually didn't; after all Labour's rationale must ultimately have been at least informed by or rationalised to some extent by the idea that the market knew best, and that was straight out of the Gospel According to Milton Friedman, which itself had really captured the minds of the British political class in the period that gave us Thatcher's 1979 government*.

Well we only know for sure what a labour government did, and that was not to intervene when it was necessary.

My observation is that a defining difference between governments that favour free market principles and those that do not is that one leaves it to the market until intervention is necessary, the other intervenes in order to prevent the market from working. I am enormously in favour of the former and totally against the latter. That is largely why I place myself right of centre.

In this particular instance I believe that since the market looks like voodoo to those following the prevent the market from working ideology, they simply didn't know to intervene. All they saw were the tax revenues pouring in and an opportunity to get their pet projects going, naively thinking they were working for the greater good in some cases, and in others, such as their handling of immigration, well words fail me.

I would have expected a free market ideologically backed government to understand what it was looking at, and act accordingly. They certainly made all the right noises at the time, and labour ministers responses were simply confused.

But, we will never know.

[Bland Unsight]

...

My observation is that a defining difference between governments that favour free market principles and those that do not is that one leaves it to the market until intervention is necessary, the other intervenes in order to prevent the market from working. I am enormously in favour of the former and totally against the latter. That is largely why I place myself right of centre.

In this particular instance I believe that since the market looks like voodoo to those following the prevent the market from working ideology, they simply didn't know to intervene. All they saw were the tax revenues pouring in and an opportunity to get their pet projects going, naively thinking they were working for the greater good in some cases, and in others, such as their handling of immigration, well words fail me.

I would have expected a free market ideologically backed government to understand what it was looking at, and act accordingly. They certainly made all the right noises at the time, and labour ministers responses were simply confused.

...

OK - that's a different argument, but the fact that Osborne brought in his equity loans suggests that left leaning parties have no monopoly on intervening to prevent the market from working.

I really liked Ha-Joon Chang's 23 Things They Don't Tell You About Capitalism and Bootle's The Trouble With Markets and John Kay's The Truth About Markets . All, coming from different places, make arguments around the fact that presupposing some kind of blank slate market is a mistake. Markets are social institutions made possible by collective action. Political choices are made when we determine what markets we will have and how they will work. I'm totally unconvinced by the militant Hayekian thinking that turns up on the forum from time to time and find it just as naively utopian as the wilder strains of collectivism that Hayek was so worked up about.

[MarkG]

I'm totally unconvinced by the militant Hayekian thinking that turns up on the forum from time to time and find it just as naively utopian as the wilder strains of collectivism that Hayek was so worked up about.

'The market' is just people voluntarily choosing to buy and sell things. How can any kind of central planning be better than that? By definition, it requires forcing people to buy and sell things they don't want to, or at prices they don't want to... otherwise they'd be doing it without the government holding a gun to their head.

[Bland Unsight]

'The market' is just people voluntarily choosing to buy and sell things. How can any kind of central planning be better than that? By definition, it requires forcing people to buy and sell things they don't want to, or at prices they don't want to... otherwise they'd be doing it without the government holding a gun to their head.

You sell, I buy. But what am I buying it with? Money. Where does the money come from? Oh, it is social construct, fabricated out of nowhere by the Bank of England and the private banks. Licensed banks. Licensed by what authority?

How are you going to enforce the contracts that arise from this voluntary buying and selling when my cheque bounces? Oh, there are solicitors who are adjudged as qualified by professional bodies, magistrates courts paid for out of taxation and there are police who are paid for out of taxation and there are laws which the artefacts of the endeavours of legislators and their power derives from the power of the Parliament that enacts them.

Personally I am furious that there is central planning providing money that enables us to make contracts under the centrally planned laws. Worse still, when I rob you blind the centrally planned police will nick my market purist @rse.

If you wish to continue this discussion, start a thread on the appropriate sub-form, send a PM and I'll see you there. For the time being let us keep this thread to the discussion of whether or not BTL will ever be regulated.

Edited August 10, 2014 by bland unsight

[rentbug]

Anyone getting into BTL now believes that there is a severe housing shortage that will get worse every year as million sof immigrants pour in.

That's what they believe because that is what they are told by the media 'hosing shortage' + 'millions of immigrants' + 'house price inflation'. then on their own they come up with house price inflation and high rents = more profit than 1% in a bank account.

It's easy to see how people are suckered into this scheme. Ask them a sensible question like why did prices fall between 2008 and 2012 then they can't answer.

They belive in 'inflation' just like a Christian would believe in God and child would believe in Father Christmas. Even if the evidence is staring them in the face they just will not believe.

'The market' is just people voluntarily choosing to buy and sell things. How can any kind of central planning be better than that? By definition, it requires forcing people to buy and sell things they don't want to, or at prices they don't want to... otherwise they'd be doing it without the government holding a gun to their head.

Wurzel, I agree 100%. But as Mark points out its who buy and sell to each other. If the vast majority of house buyers (BTL or OO) expect HPI then each buyer will expect to pay more than the previous price. they also expect to sell more than the price they now pay.

Likewise when the vast majority of buyers expect falling prices they will be "canny bargain hunters".

The trick therefore is to see when the vast majority change their views. I think this is the importance of items like this in the media (even if it is rubbish and badly written DM twaddle).

IMHO sentiment is slowly changing. A correction is much more likely than 18 months ago. It is still far from certain though. What's for sure is the longer we wait the harder the fall when it comes.

[little fish]

Didn’t see this on the board anywhere and I thought it belonged here.

Earlier this year it was announced that the EU Directive was going to allow BTL to be exempt from having to be formally regulated. Government opinion has changed and is now stating that it would be unlawful under the Mortgage Credit Directive to exempt all BTL lending from regulation. Accidental landlords who did not purchase the property with the intention of running a letting business will be treated for mortgaging purposes as regulated customers. Let to Buy loans will be assessed for affordability for both loans. This includes where a house has been an inheritance. After MMR most lenders stopped doing regulated BTL loans. Got me to wondering if they knew then that this was going to happen. LTB is only a small part of the BTL market compared to regular BTL so if they had to 'give in' LTB would result in the least financial loss. Or maybe there is a genuine understanding that BTL is out of control and needs reigned back. Whatever the reason, It's a start.

“In a consultation paper on how the UK will implement the requirements of the European Mortgage Credit Directive the Treasury said it has no choice but to impose national law on part of the Buy-to-let market.”

From CML director Paul Smee "It is frustrating though that, despite earlier assurances, the buy-to-let position turns out not to have been adequately resolved, resulting in a new proposal for regulating part of the buy-to-let mortgage market.

“The regulatory regime now being proposed is based not on any evidence of a need for additional consumer protection but purely on ensuring that the European legal requirements are met."

http://www.mortgageintroducer.com/mortgages/250561/5/Industry_in_depth/Treasury_U-turns_on_buy-to-let_regulation.htm

http://www.telegraph.co.uk/finance/personalfinance/borrowing/mortgages/11077718/Blow-for-accidental-landlords-as-EU-rules-threaten-to-kill-off-let-to-buy-mortgages.html

[Killer Bunny]

http://www.introducertoday.co.uk/index.php?option=com_k2&view=item&id=720:plan-to-regulate-buy-to-let-angers-industry&Itemid=583

"Brokers and lenders have expressed their shock and disappointment at the Treasury's decision to regulate parts of the buy-to-let market." I'll bet they have!!!

Bring it on!

Edited September 8, 2014 by Killer Bunny