Buy To Let Finance Watch

[TheCountOfNowhere]

Savills Plc ESTATE AGENTS expects prime central London property values to stagnate this year and next before increasing by 8 percent in 2019. 

What they dont expect is people taking to the streets to string up politicians, rich men, bankers and estate agents.

 

[spyguy]

50 minutes ago, mchlpeel said:

I just got finance approved from Nationwide.

residential mortgage

LTV = 95%

With day 1 consent to let.

2 year fix @ 4%

5 years fix a@ 4.85%

Trackers @ base rate + 4.24%.

Rather you than me.

[Ah-so]

https://www.property118.com/remortgage-now-avoid-pra-rules-september/#comment-92945

Remortgaging is posing a real problem for portfolio landlords with high LTVs. 

Expect to see a lot of this type of thing from now on. 

Property 118 missed these PRA rules coming in because they were so focused on s24, but the introduction of the portfolio rule element in a couple of months will be massive. 

[spyguy]

7 minutes ago, Ah-so said:

https://www.property118.com/remortgage-now-avoid-pra-rules-september/#comment-92945

Remortgaging is posing a real problem for portfolio landlords with high LTVs. 

Expect to see a lot of this type of thing from now on. 

Property 118 missed these PRA rules coming in because they were so focused on s24, but the introduction of the portfolio rule element in a couple of months will be massive. 

Snippets..

4 properties .. in 60s .. personal loan ... credit card balance ... empasising credit blance as a buffer !?! High ltv (so io then, after 10+ years of 'owning')

Wtf were banks thinking lending so much to these people ffs. On io terms ffs!

I like the need for a busines pland and cash flow. Basically both are cross fingers and hope i can lend it for more than the mortgage interest.

Banks need to stick a repayment plan into the model asap. And commercial irs. And reuire loan repayment before retirement.

[spyguy]

Then in a later reply says 'Im fairly risk averse...'

Boggling!

[Ah-so]

21 minutes ago, spyguy said:

Then in a later reply says 'Im fairly risk averse...'

Boggling!

Well, she only had 4 highly leveraged properties. That counts as risk averse on 118.

[adarmo]

On 20/07/2017 at 1:16 PM, spyguy said:

2 year fix @ 4%

5 years fix a@ 4.85%

Trackers @ base rate + 4.24%.

Rather you than me.

Some hefty rates there!

I wonder if though consent to let is available on the lower LTV mortgages? We have 1.54% two year fixed. Didn't ask about letting as absolutely no interest in that right now. 

Interestingly consent to let is available for peeps in armed forces at no extra charge.

[spyguy]

2 hours ago, adarmo said:

Some hefty rates there!

I wonder if though consent to let is available on the lower LTV mortgages? We have 1.54% two year fixed. Didn't ask about letting as absolutely no interest in that right now. 

Interestingly consent to let is available for peeps in armed forces at no extra charge.

Great. PropertAnne needs to enlist. At 60+

The numberof squaddies who could afford a mortgage is low.

[adarmo]

1 hour ago, spyguy said:

Great. PropertAnne needs to enlist. At 60+

The numberof squaddies who could afford a mortgage is low.

Haha, I fear she may be even too old for our lot these days!

I guess it depends on how you define squaddie but they start on £14k to train and then become a private on £18.5k which which would be enough to buy a flat in many army towns. 

http://www.army.mod.uk/documents/general/Ratesofpay-Regular.pdf 

My deal old mother works for the MoD and deals with the army on daily basis. Many of them have multiple house since they can live virtually rent free in quarters they buy a house and let it out while doubling down on the mortgage. Obviously this is more the case with higher paid officers but in the army I think it's what you don't pay for, more than what you earn.

[Cosmic Apple]

9 minutes ago, adarmo said:

Haha, I fear she may be even too old for our lot these days!

I guess it depends on how you define squaddie but they start on £14k to train and then become a private on £18.5k which which would be enough to buy a flat in many army towns. 

http://www.army.mod.uk/documents/general/Ratesofpay-Regular.pdf 

My deal old mother works for the MoD and deals with the army on daily basis. Many of them have multiple house since they can live virtually rent free in quarters they buy a house and let it out while doubling down on the mortgage. Obviously this is more the case with higher paid officers but in the army I think it's what you don't pay for, more than what you earn.

My sister is in the RAF. She's doing I think 18months in Scotland somewhere, as there are no on base living facilities available they are renting her a flat, all paid for in town. Oh and she gets PAID a generous allowance because there are no facilities on base for her to stay in, because of the inconvenience of living off site (i.e. no catering)! Her next move she's expecting the same in Wales. Thus far I've managed to scare her off BTL, but I expect it won't last unless we see some downward movement soon!

Edited July 23, 2017 by Northern Welsh Midlander

[adarmo]

11 minutes ago, Northern Welsh Midlander said:

My sister is in the RAF. She's doing I think 18months in Scotland somewhere, as there are no on base living facilities available they are renting her a flat, all paid for in town. Oh and she gets PAID a generous allowance because there are no facilities on base for her to stay in, because of the inconvenience of living off site (i.e. no catering)! Her next move she's expecting the same in Wales. Thus far I've managed to scare her off BTL, but I expect it won't last unless we see some downward movement soon!

I did the same to a friend of mine - he bought a flat to rent out and the mortgage was nearly but not quite covered. This was about 8 years ago though. Now he's likely sitting on a tonne of equity. If I'd joined up I think I'd have just plonked as much into an equity tracker as possible.  

[hi5lo5]

This is from the investor report of Silverstone RMBS issued by Nationwide. It's a £10b securitization of mortgages with 35% in IO mortgages and combination. Lloyd's have similar numbers but the delinquencies are higher.

 

[hi5lo5]

OK people... here is something for number crunchers 

Especially @Bland Unsight @spyguy

I have been lately looking in to the RMBS.The uncrowned king of BTL lending "paragon" has a series of Bonds, you can access them here. 

http://www.paragon-group.co.uk/investors/bond-investor-reporting

Here is what I found with my non existent excel skills. I wasn't sure to try this yet. I took the entire portfolio at the face value and tried to apple S24 rules and came up with the below figures. I know the error rate is high for cumulative sum. The model is simple

2016/2017 (Declared annual gross rental income - 10% ) - (Monthly Interest paid X 12) = profit

2017/2018 onwards Applied S24 on the Mortgage Interest paid. The loan level details are great if you want to run some numbers. There are couple of East midlands LL's with portfolio of 76 and 42. I presume one of them is Landlord whisperer. 

Series 23 with 1729 mortgages , Gross yield : 5.99%, Net yield  pre S24 is 1.74% post S24 0.86%

Num mortgages		1729
Total value		380,360,000.00
Mortgage		189,028,000.00
	Monthly	Yearly
Rent collected	1,899,750.00	22,797,000.00
Interest paid	1,156,805.00	13,881,660.00
Post expenses -10%	1,709,775.00	20,517,300.00
Average Tax rate		30%
2016/2017	552,970.00	6,635,640.00
2017/2018	358,158.88	4,297,906.50
2018/2019	329,238.75	3,950,865.00
2019/2020	300,318.63	3,603,823.50
2020/2021	271,398.50	3,256,782.00

 

Series 24 is the latest 

Num mortgages		1964
Total value		461,189,000.00
Mortgage		287,676,000.00
	Monthly	Yearly
Rent collected	2,055,333.33	24,664,000.00
Interest paid	1,243,200.00	14,918,400.00
Post expenses -10%	1,849,800.00	22,197,600.00
Average Tax rate		30%
2016/2017	606,600.00	7,279,200.00
2017/2018	393,540.00	4,722,480.00
2018/2019	362,460.00	4,349,520.00
2019/2020	331,380.00	3,976,560.00
2020/2021	300,300.00	3,603,600.00

[spyguy]

You cant really, without knowing about the distribution of mortgage holders tax position.

And I mean that as a BTL loan is much more risky post S24.

Btl is one ignored risk after another.

The original risk was made up rental values and ignored void periods. Never came up, just OOh, itll rent for 800/m on an EAs sayso.. Come 2007 and voids and non paying tenants go off the scale.

Now youve the big unknown of increasing tax liabilities.

[hi5lo5]

1 hour ago, spyguy said:

You cant really, without knowing about the distribution of mortgage holders tax position.

And I mean that as a BTL loan is much more risky post S24.

Btl is one ignored risk after another.

The original risk was made up rental values and ignored void periods. Never came up, just OOh, itll rent for 800/m on an EAs sayso.. Come 2007 and voids and non paying tenants go off the scale.

Now youve the big unknown of increasing tax liabilities.

Yes the tax position of the LL is missing. However I found the individual declared income in other RMBS. Here is the rough numbers.

>120k = 8%

100 - 120k = 3%( Loosing personal allowance)

60 - 100k =  15%

50 - 60k =  8% (Loosing child Benefit)

45 - 50k = 6%

35 - 45K = 21%  (61% of BTL pushed to higher rates)

 

Edited August 9, 2017 by hi5lo5

[Houdini]

9 minutes ago, hi5lo5 said:

Yes the tax position of the LL is missing. However I found the individual declared income in other RMBS. Here is the rough numbers.

>120k = 8%

100 - 120k = 3%( Loosing personal allowance)

60 - 100k =  15%

50 - 60k =  8% (Loosing child Benefit)

45 - 50k = 6%

35 - 45K = 21%  (61% of BTL pushed to higher BTL)

 

That's irrelevant as your typical btler won't know about S24 until they fill in their 2017-18 tax return in September 2018...

[hi5lo5]

20 minutes ago, Houdini said:

That's irrelevant as your typical btler won't know about S24 until they fill in their 2017-18 tax return in September 2018...

HMRC published a new form to capture rental income details for last year which BTlers will be filling next month. Anyone with half a brain would start wondering why HMRC is asking for these details.

The above breakdown was taken out from one the loan level data submitted to BOE . I was trying to gauge the level of damage  S24 would do to wider market. 

[spyguy]

6 hours ago, hi5lo5 said:

Yes the tax position of the LL is missing. However I found the individual declared income in other RMBS. Here is the rough numbers.

>120k = 8%

100 - 120k = 3%( Loosing personal allowance)

60 - 100k =  15%

50 - 60k =  8% (Loosing child Benefit)

45 - 50k = 6%

35 - 45K = 21%  (61% of BTL pushed to higher rates)

 

25k-35k (Losing tax credits).

Much more substantial than child benefit.

 

 

[Bland Unsight]

11 hours ago, Houdini said:

That's irrelevant as your typical btler won't know about S24 until they fill in their 2017-18 tax return in September 2018...

And your typical (mode) BTLer is irrelevant as Section 24 acts on the tail of the distribution; the guys in the tail own lots and lots of property. As per the survey data in Scanlon & Whitehead for the CML in December 2016 (which is the largest survey to date, link) only about 2% of over-leveraged muppets have more than 10 buy-to-let mortgages but those properties represent about 20% of the buy-to-let mortgages in the present stock. I'd be comfortable with the idea that most of these Bosher/Fraser/Busta type sociopaths are up to speed with Section 24.

As you move further in from the end of the distribution you'll find that whilst only 12% of landlords will be affected by the PRA underwriting rules coming in next month, those landlords hold 42% of BTL mortgages.

With a significant percentage of BTL on 2-year fix rate mortgages your suggestion that we have to wait for September 2018 doesn't hold up well when set against the data.

It's probably truer to say that we are already seeing the effect of Section 24 when we look at the failure of BTL approval volumes to recover in the wake of the anticipated drop following the spike due to the April 2016 introduction of the SDLT surcharge.

Edited August 10, 2017 by Bland Unsight

[Bland Unsight]

12 hours ago, hi5lo5 said:

OK people... here is something for number crunchers 

 

12 hours ago, spyguy said:

You cant really, without knowing about the distribution of mortgage holders tax position.

Making no apologies for repeating my own rubbish 'jokes' the problem with public domain data on BTL is that there is no decent public domain data on BTL.

Interesting rule of thumb analysis hi5lo5 and a sensible way of trying to extract some rule of thumb insight from the public domain data that does exist. Thanks for posting.

Worth noting that (as best as I understand matters) the Paragon SPVs are bells and whistles bankruptcy remote from Paragon; it's the people who bought the RMBS who carry the risk and should the SPVs fail it's the lenders to the SPVs (i.e. the RMBS bondholders) who will take the losses. Also worth bearing in mind that the Paragon portfolio is mostly likely unrepresentative in two ways compared to the average UK BTL mortgage. Firstly, the underwriting is probably a bit stricter (lower LTVs, higher ICRs) but also the concentration of the BTL Masters of the Universe (the 10+ portfolio guys) is probably greater in the Paragon book than it is in the stock of BTL mortgages as a whole. Taking on board those two points I think the merit of the rule of thumb analysis here is strengthened a little; the borrowers captured by these RMBS investor reports are, I would guess, more likely to be paying tax at 40% under Section 24 than the typical BTL landlord because they are more likely to be a portfolio landlord than someone drawn at random from, say, the Lloyds Bank BM Solutions book.

Been a while since I looked at one of these investor reports but IIRC some of them (all of them?) also report the pay rate on the loan book which will give you a feel for how many of these mortgages are stuck on bonkers late boom base rate plus bugger all tracker deals and how many have reverted to an SVR type rate.

[suresh786]

On 7/20/2017 at 2:24 PM, mchlpeel said:

I just got finance approved from Nationwide.

residential mortgage

LTV = 95%

With day 1 consent to let.

Back to 2006

[hi5lo5]

56 minutes ago, Bland Unsight said:

 

Making no apologies for repeating my own rubbish 'jokes' the problem with public domain data on BTL is that there is no decent public domain data on BTL.

Interesting rule of thumb analysis hi5lo5 and a sensible way of trying to extract some rule of thumb insight from the public domain data that does exist. Thanks for posting.

Worth noting that (as best as I understand matters) the Paragon SPVs are bells and whistles bankruptcy remote from Paragon; it's the people who bought the RMBS who carry the risk and should the SPVs fail it's the lenders to the SPVs (i.e. the RMBS bondholders) who will take the losses. Also worth bearing in mind that the Paragon portfolio is mostly likely unrepresentative in two ways compared to the average UK BTL mortgage. Firstly, the underwriting is probably a bit stricter (lower LTVs, higher ICRs) but also the concentration of the BTL Masters of the Universe (the 10+ portfolio guys) is probably greater in the Paragon book than it is in the stock of BTL mortgages as a whole. Taking on board those two points I think the merit of the rule of thumb analysis here is strengthened a little; the borrowers captured by these RMBS investor reports are, I would guess, more likely to be paying tax at 40% under Section 24 than the typical BTL landlord because they are more likely to be a portfolio landlord than someone drawn at random from, say, the Lloyds Bank BM Solutions book.

Been a while since I looked at one of these investor reports but IIRC some of them (all of them?) also report the pay rate on the loan book which will give you a feel for how many of these mortgages are stuck on bonkers late boom base rate plus bugger all tracker deals and how many have reverted to an SVR type rate.

Since the 2007 crash no one sells CDS for the RMBS. However all RMBS have class of shares and the junior most class(approx 5%) is subscribed by the SPV creator, the bank. Payout happens top to bottom and the event of default the junior class subscribers take the hit.

Lloyd's RMBS is tricky, because they securitize the these BTL loans along with the OO loans. Let me see if I can get Loan level data for those.

Unfortunately paragon doesn't report income data on the loan file. The income segmentation posted earlier comes from a building society RMBS, which I believe a close representation of a typical BTLers.

SVR is another variable that works against these idiots. If you look at the latest loan file of no.24 you can see that most of the loans reverting to SVR with in the next 6 months period.

[hi5lo5]

6 hours ago, spyguy said:

25k-35k (Losing tax credits).

Much more substantial than child benefit.

 

 

25k-35k is about 24%

So we have a whopping 85% of BTL properties will be affected by S24.

[TheCountOfNowhere]

https://www.lettingagenttoday.co.uk/breaking-news/2017/8/natwest-overhauls-buy-to-let-mortgage-offer-ahead-of-rules-change?platform=hootsuite

 

"NatWest overhauls buy to let mortgage offer ahead of rules change"

 

As with other mortgage companies, portfolio applicants with four or more BTL properties will have to produce additional information on their other properties (residential and buy to let) to enable a full affordability assessment. 

 

 

[Habitationi Bulla]

35 minutes ago, TheCountOfNowhere said:

https://www.lettingagenttoday.co.uk/breaking-news/2017/8/natwest-overhauls-buy-to-let-mortgage-offer-ahead-of-rules-change?platform=hootsuite

"NatWest overhauls buy to let mortgage offer ahead of rules change"

As with other mortgage companies, portfolio applicants with four or more BTL properties will have to produce additional information on their other properties (residential and buy to let) to enable a full affordability assessment. 

Fergus will have to start eating more of his houses to hide them, But failing that surely he is screwed in the next year????

Or is it a case if you own a few BTL mortgages you've got a problem, if you own 1000 the banks got a problem.

Edited August 10, 2017 by Habitationi Bulla