Negative Interest Rates Could Be Necessary To Protect Uk Economy, Says Bank Of England Chief Economist

[Si1]

Posted:

http://www.housepricecrash.co.uk/forum/index.php?/topic/206452-boe-blog-a-lifecycle-of-housing-debt/

I've been having a think about the the issue that the debt lifecycle shows, 'Blair's 50% going to Uni' + peak earnings.

Its all a bit anecdotal + raw at the mo- but new stuff/big changes always are

I follow a number of my younger brother's peers and the woman at works daughter and friends.

These are people in the mid-30s now.

Most went to Uni.

Most (70%) did non-vocational courses.

They are a 'not using their degree' Or rather, their degree is fcking useless for getting a job.

The 70% are doing jobs they could have done at 16.

A generation ago, Mr+ MRs UK-Average's earnings used to peak in their mid-30s.

Basically, people get married and settle down.

Kids came along so you could not work much overtime (remember that?), you could not chase higher paid jobs as its hard lugging your family from place to place.

So, ~15 years of earning, followed by a plateau/falling off.

You could bump up peak earning age by moving up and doing stuff that relied less on grunt i.e. train up for high end office work - accountant, engineer etc etc.

What appears to be happending is that, rather than increasing peak earning age, its about the same - mid-30s.All forthe same reasons -kids.

The stinger is that these people have delayed entering work til their early 20s. Christ, throw in a gap year and these people will not start earning til they are almost 25 FFS!. Thats almost 10 years later than someone who enters at 16.

Chuck in a stupid loan, which is nothing more than a graduate tax at the mo, and you have a ~5% tax drag on your earnings too.

For the few of this cohort who buy (see bank chart tweet), they are buying *past* their peak earnings - late 30s/early 40s.

And they are taking on *huge* levels of debt realtive to their earnings.

Look at the observation in the Buttonwood post:

'The ratio of house prices to first-time buyers incomes in London, which was 2.6 in 1996 and 7.2 at the last peak in London, is now a staggering 9.4.'

Plenty of people currently around the 40 year old mark didn't experience much in the way of peak earnings anyway, during the years of Gordon Brown's glorious public sector, many fields of private sector work, especially outside the south east, had moribund pay and little career advancement

[pipllman]

Exactly that BuyToLeech.

Pipllman should accept this as a portfolio landlord himself without debt. Not attacking you there Pipllman... just asking you to recognise how your wealth position has been boosted by the credit-fest, the liar-loan party years, then the 'It was all the bankers fault - print print print for recovery'

You could probably fit all the higher earning bonus Bankers/Traders from 2001-2007 into one big house, all squeezed in tight together. Whereas millions of owners are sat on £Trillions in equity, who've gained so much from the recklessness.

I am the first to accept that the response to the banking crisis has been of net benefit to me - the very first.

I think I made the right response to it: set out to clear down debt at the fastest possible rate. Certainly not leverage up the back axle on the cheap money.

The picture is a complex one. No one forced people to borrow, or to lie on loan applications. Similarly, no one forced banks to lend, or to offer loans with ever looser assessment of borrowers' covenants. Yet borrowers borrowed and lenders lent. The part where it went wrong is when the taxpayer ended up on the hook for it. I would have preferred that retail deposits were protected in full and the banks and lenders were allowed to go skint

Further to the banks requirement for deposits. Deposits do indeed help banks in some ways, but most do not need / want masses of UK retail current and deposit accounts as a way of making profit, but for lubricating the machine so to speak.

They chase ISAs and fixed period bonds because that is better for them to plan around than instant access accounts and to have another customer to sell debt to

The net of it is that a retail bank only makes money from lending, not from having deposits. If providing a current and deposit account causes a customer to have a credit card, a mortgage and a car loan, the bank is in a good place.

[Venger]

The picture is a complex one. No one forced people to borrow, or to lie on loan applications. Similarly, no one forced banks to lend, or to offer loans with ever looser assessment of borrowers' covenants. Yet borrowers borrowed and lenders lent.

Near the end of a major expansion, few creditors expect default, which is why they lend freely to weak borrowers. Few borrowers expect their fortunes to change, which is why they borrow freely. The psychological aspect of deflation and depression cannot be overstated. ...(Pretcher)

And those lending freely are just as big HPI heads (forever boom - thanks Gordon) wanting more HPI. It all comes apart from excess greed and complacency on lender and borrower side.

Fine pipllman, but I haven't borrowed, and still expect significant prime HPC. It's not over yet. You continue to keep thinking savings/deposit are not that important.

There are two sides to the lending equation anyway - and - aggregate demand in the real economy has in fact met the limit of monetary policy, rendering QE’s impact ineffective and obsolete.

You got the gain and then breathing space to pay down debt in low-rate environment and didn't add more properties as many other landlords did (even when already having properties with MX... they continued from 2008 and now have 100 properties).

However it's not over, and my market participant view is this negative rate scare is a ruse. Majority of QE is making banks more robust for HPC. They've got rid of a load of junk at good prices into the reflation. Eventually the banks are going to want to get fresh debt on the asset holders positions (£Trns in equity on the older owners houses).

Throughout my career, I have had criminals sit in front of me and in most instances they offered attempted to rationalize their behavior. Often, they would use the same excuse the Ritters are using --- they would claim that their wrongful behavior was justified by someone else's wrongful behavior.

Yes, it's the bank's fault that these people had to commit fraud and to live in a million dollar house they're not paying for. It's a tough job, but someone has to do it.

Not one bank held a gun to anybody's head and forced him/her to take on a mortgage s/he could not afford.

I'm sick of people blaming the System for problems with their personal finances. May be if you bother to learn a little math and compounding interests, and read the fine lines a little more carefully before signing, you would be in a better shape. The One Percent didn't force you to sign in the dotted line.

How many people were FORCED go buy homes they couldn't afford? NONE.

How many WILLINGLY bought homes they couldn't afford? More than none.

- reader comment on Washington Post, March 2012

[pipllman]

I also expect HPC.

I don't think I expect HPC to be as big as you (venger) do. Nor do I think it will be as easy to take advantage of as you do. I don't know when it will start (or if it has started already), how big it will be or how long it will last. I don't know what the government will do to delay it or reverse it if they can't stop it starting. I don't know how banks will react to it.

I have never said that savings / deposit are not that important to individual savers, just that there importance to banks is often overstated. The best buyer is one that buys from her own resources, with no need to borrow (she may choose to borrow).

In a contract between a consumer and a business then, generally, the business is viewed as the expert and the consumer as knowing nothing. To illustrate. If you buy a car from a car dealer, it is expected to be fit for purpose and your rights are governed by legislation. If the car has a fault when you buy it, it is for the dealer to fix. If you sell a car to a dealer, it is for the dealer to assess it before making a purchase. If the car has a fault when the dealer buys it, that is also for the dealer to fix.

The relationship with a bank is, in some ways, the same. If the bank is prepared to make the loan, then the consumer should rightly expect that the bank is happy with the deal. If the consumer defaults and the contract doesn't see the losses covered, there is a strong case to say that the bank should suck it up.

So, just as no one is holding a gun to the head of the consumer to take the loan / buy the house, neither is there anyone holding a gun to the head of the bank to make the loan / take the house as security for the loan.

It is a two edged sword. Spoiled only by the fact that neither consumer nor bank have been allowed to suffer for their stupidity: both were bailed out by the combination of actions taking by the government using tax payers (and future tax payers) money. That is the real scandal.

[Venger]

I also expect HPC.

I don't think I expect HPC to be as big as you (venger) do. Nor do I think it will be as easy to take advantage of as you do. I don't know when it will start (or if it has started already), how big it will be or how long it will last. I don't know what the government will do to delay it or reverse it if they can't stop it starting. I don't know how banks will react to it.

I have never said that savings / deposit are not that important to individual savers, just that there importance to banks is often overstated. The best buyer is one that buys from her own resources, with no need to borrow (she may choose to borrow).

In a contract between a consumer and a business then, generally, the business is viewed as the expert and the consumer as knowing nothing. To illustrate. If you buy a car from a car dealer, it is expected to be fit for purpose and your rights are governed by legislation. If the car has a fault when you buy it, it is for the dealer to fix. If you sell a car to a dealer, it is for the dealer to assess it before making a purchase. If the car has a fault when the dealer buys it, that is also for the dealer to fix.

The relationship with a bank is, in some ways, the same. If the bank is prepared to make the loan, then the consumer should rightly expect that the bank is happy with the deal. If the consumer defaults and the contract doesn't see the losses covered, there is a strong case to say that the bank should suck it up.

So, just as no one is holding a gun to the head of the consumer to take the loan / buy the house, neither is there anyone holding a gun to the head of the bank to make the loan / take the house as security for the loan.

It is a two edged sword. Spoiled only by the fact that neither consumer nor bank have been allowed to suffer for their stupidity: both were bailed out by the combination of actions taking by the government using tax payers (and future tax payers) money. That is the real scandal.

Houses are valued in demand assets for obvious reasons. There was lending and borrowing and ever higher prices. The main part 2001-2007. We've already had the main Emotional Breakdown for the borrower side, who had pushed and fallen over each other to pay prices others recoiled from in horror.

Premature Congratulation and excuses for borrowers 'didn't knowing what they were doing / only wanted a home'. It was ages ago the crunch. 7-8 years ago. As you admit... they were bailed out. Lender and borrower side. At great cost to the renter-saver side. Then we've had continuation years of Breakdown as people have been borrowing at lower rates, global QE, and pushed prices right back up, way beyond peak in parts. Worrying for the owner side future. Including many a BTLer setting those high prices imo. We can't go on and on and on worshipping the owner side as ultra special and needing protection, and basically sticking the Vs up at renters all the time.

Carney said don't expect bailouts in future. The banks are in a stronger position. It's time for the owner side to realise HPC can happen. Including your BTLers and their security... Blandy pointed out to a BTLer who paid £400K for a place a while back, the BTLer's 25% deposit was actually the banks security, not the BTLer's buffer. It's a scandal that can be corrected by HPC. Borrowers have long spell to pay down their debts under low rates, and then of course, there are all the £Trillions in equity on the owner side. Needs fresh debt on it. Your portfolio of houses aren't earning the banks any money. Better to have HPC and you deciding to sell a few back to the market.

November 2013: The governor of the Bank of England has issued a blunt warning to potential home-owners that they must be able to pay their mortgages when interest rates go up and not rely on being bailed out of any future difficulties by rising house prices.

"Think about the mortgage you are taking on, the debts you are taking on," Carney said when asked what his message was to those aspiring to get on the housing ladder. "You are taking at least a 25-year mortgage, maybe a 30-year mortgage.

"Are you going to be able to service that mortgage five years from now, 10 years from now, if interest rates are higher? Or are you counting, even subconsciously, on the price of your house keeping going up and if something happens an ability to sell it quickly and not facing the consequences of not being able to pay?"

http://www.theguardian.com/business/2013/nov/29/mark-carney-bank-of-england-home-buyer-warning

Edited September 19, 2015 by Venger

[pipllman]

Unfortunately I don't think it will be carney's call - it is too political a subject. His warning is, of course, sensible and sensible people will have taken heed.

Maybe the banks have got themselves into better shape. I wonder somewhat about the future when I see them fighting for BTL business in the manner that Nationwide, Natwest and HSBC have been seen to be doing recently.

Maybe some / most OOs and LLs have got themselves into better shape wrt debt too

Some very clearly have not, despite the clear warnings and massive grace period

I hope a free market is a allowed to prevail but, based on the evidence I have seen so far, I really wouldn't be surprised if the government tried to intervene again. That would be more of a scandal than the last intervention, but that doesn't mean it can't / won't happen unfortunately.

[29929BlackTuesday]

WTF indeed!

If any proof was needed that the "economy" is not as healthy as it seems in the MSM, we get this.

I was truly shocked when I saw this on the ticker by Canary Wharf station last night.

My dining party noticed that I was somewhat distracted for a while (like the guy who cant take his eyes off the TV in a Bar).

CB policies now seem to be swinging as wildly as the stock indices.

I suspect that international politics is heating up by stealth and being kept from us all...we only see a few symptoms.

Really like the image of you staring at the ticker! I do the same, anywhere I can see one on a screen and it comes up with anything to do with interest rates or stock markets I fixate! Radio's even worse. I wang the volume up if anything useful comes on - terrifies the kids in the back of the car - well van, it's a Toyota Estima J reg.. lovely.

I was so cross at the BBC bias I rang in to a Radio 2 phone in years ago as "John from Worcester" (little pun on the 'Jonfrum' cult there - classy) banging on about HPC. They wanted me to go on a telly programme as a 'crasher' - I said no obviously.

Anyway, back to RT (Russia Today) for my news now…. anyone else look at RT for a balanced view of the world?

[Venger]

Unfortunately I don't think it will be carney's call - it is too political a subject. His warning is, of course, sensible and sensible people will have taken heed.

Maybe the banks have got themselves into better shape. I wonder somewhat about the future when I see them fighting for BTL business in the manner that Nationwide, Natwest and HSBC have been seen to be doing recently.

Maybe some / most OOs and LLs have got themselves into better shape wrt debt too

Some very clearly have not, despite the clear warnings and massive grace period

I hope a free market is a allowed to prevail but, based on the evidence I have seen so far, I really wouldn't be surprised if the government tried to intervene again. That would be more of a scandal than the last intervention, but that doesn't mean it can't / won't happen unfortunately.

Just because a bank is offering BTL doesn't mean they think it's profitable for the borrower. Unregulated market facing many challenges. Ask Mark Alexander and many of the 118 crew. I'm not going to be having Breakdown for those buyers of BTLs to rent to others, at these house prices. They made their own decisions in this market.

Ok, then it seems you don't understand or disagree with many a concept and conclusion in Bland Unsight's book; A goodbye to all that buy-to-let

Amazon http://www.amazon.co.uk/goodbye-all-that-buy-let-ebook/dp/B014N2E9H0

Free PDF (from a link at) http://agoodbyetoallthatbuytolet.blogspot.co.uk/

Our purpose here is to make the case that the buy-to-let sector will soon be gone, and we only swim into murky waters because we need to be clear about what a bank’s capital is, and what it is not, and because I want to keep the idea of money and capital separate.

[..]Bank capital matters because it is the buffer that exists to absorb losses. If you have ever wondered what was meant by discussions of very high levels of leverage in the banking system prior to 2008 then the truth of it is simple really. When we consider a mortgage lending bank, leverage expresses the ratio between how much money of its own the bank has and the total amount of loans it has made, (it is worth repeating yet again that the bank does not lend its own money, it lends its depositors’ money). The risk of operating at high levels of leverage (lots of loans made, not so much of the bank’s own money in its back pocket) is that if the bank starts to make losses on the loans it may quickly burn through its capital base (the money in the bank’s back pocket) and thus become insolvent. Reports in the wake of the crisis suggest that some banks were operating with leverage ratios of as much as......

[...]Capital Adequacy Ratio framework. [..]If you are a buy-to-let investor, sell; hit the exits first before the crush at the door begets a crash.

[pipllman]

I do understand bland's book. I don't agree with it all.

Banks chasing BTL business with reduced rates, reduced fees, higher LTVs, only rent income needed, bigger commissions to introducers etc. means that they think it is profitable for them as lenders

I agree that doesn't need to mean that the lenders think it is profitable for the borrowers

What it does show, imo, is that lenders are very keen to lend and given that MMR has perhaps reduced the OO market, that they are going after the unregulated BTL sector in their quest to keep on lending (gaining market share)

Even though the market is unregulated and BTL should be regarded as informed borrowers, I still think there should be some onus on the lender to lend responsibly - which means that if it all goes mammaries up (again) and they find that their BTL customers can't pony up after all, that they don't look to the taxpayer to bail them out (again)

The BTL, borrowing in an unregulated market, should have no comeback either. If it becomes necessary then lenders should (for as long as they the lenders may remain solvent and in existence) pursue the borrowers relentlessly to cover their obligations.

Both parties to the deal should be allowed to stand or fall on the basis of the deals they agreed...

Alas, I can see the scenario where a taxpayer bail out or a saver bail in could happen again as a result of the amount of questionable lending that seems to be going on just now.

I hope I am wrong on that.

[Bruce Banner]

I do understand bland's book. I don't agree with it all.

Banks chasing BTL business with reduced rates, reduced fees, higher LTVs, only rent income needed, bigger commissions to introducers etc. means that they think it is profitable for them as lenders

I agree that doesn't need to mean that the lenders think it is profitable for the borrowers

What it does show, imo, is that lenders are very keen to lend and given that MMR has perhaps reduced the OO market, that they are going after the unregulated BTL sector in their quest to keep on lending (gaining market share)

Even though the market is unregulated and BTL should be regarded as informed borrowers, I still think there should be some onus on the lender to lend responsibly - which means that if it all goes mammaries up (again) and they find that their BTL customers can't pony up after all, that they don't look to the taxpayer to bail them out (again)

The BTL, borrowing in an unregulated market, should have no comeback either. If it becomes necessary then lenders should (for as long as they the lenders may remain solvent and in existence) pursue the borrowers relentlessly to cover their obligations.

Both parties to the deal should be allowed to stand or fall on the basis of the deals they agreed...

Alas, I can see the scenario where a taxpayer bail out or a saver bail in could happen again as a result of the amount of questionable lending that seems to be going on just now.

I hope I am wrong on that.

That is why it is imperative that savers do not let any account go a penny over the £75K FSCS guarantee limit, which is also the limit under which a bail in will not be imposed.

Personally, I'm going for the best fixed rate deals, but nothing over two years unless there is a get out.

http://www.housepricecrash.co.uk/forum/index.php?/topic/205629-deposit-protection-reduced/?p=1102780660

Edited September 19, 2015 by Bruce Banner

[Venger]

I do understand bland's book. I don't agree with it all.

Banks chasing BTL business with reduced rates, reduced fees, higher LTVs, only rent income needed, bigger commissions to introducers etc. means that they think it is profitable for them as lenders

I agree that doesn't need to mean that the lenders think it is profitable for the borrowers

What it does show, imo, is that lenders are very keen to lend and given that MMR has perhaps reduced the OO market, that they are going after the unregulated BTL sector in their quest to keep on lending (gaining market share)

Even though the market is unregulated and BTL should be regarded as informed borrowers, I still think there should be some onus on the lender to lend responsibly - which means that if it all goes mammaries up (again) and they find that their BTL customers can't pony up after all, that they don't look to the taxpayer to bail them out (again)

The BTL, borrowing in an unregulated market, should have no comeback either. If it becomes necessary then lenders should (for as long as they the lenders may remain solvent and in existence) pursue the borrowers relentlessly to cover their obligations.

Both parties to the deal should be allowed to stand or fall on the basis of the deals they agreed...

Alas, I can see the scenario where a taxpayer bail out or a saver bail in could happen again as a result of the amount of questionable lending that seems to be going on just now.

I hope I am wrong on that.

You're wrong about the last part, imo. The banks have been strengthening. That's how it's going to be. Pursue. Just at the moment, trying to pull in more BTLers, to fully squeeze later, including their main own homes. Most of the BTLers still buying today don't even know of changes to Tax Relief. The BTLers are not owed any responsible lending (MMR style), although I accept you're not suggesting they should be. All that matters is banks are left standing. They will be.

The real nature of the banks is in bubble-boy Serpico's story. Bubble-boy goes down, after having bought his mansion in a recession, loses it in the next one, and house mansion bought by a neurosurgeon at a snip. Rebalancing. Serpico kicked off top of the layer cake with his over-exposure with hogging multiple businesses in one sector (4 franchises), Bentley, new top car for wife every 3 years, racehorses, private plane gobbling up fees and costs at local airfield. From that to the bank shouting at him, and repo-ing his house and business... going on the run in a leased car, and pleading with landlowner to allow him to stay in a run-down cottage on his land. The extremes can change.

You've just touched on something that I think is a fundamental failing in our culture. The inability to distinguish between productive and parasitic activity within a market economy. We've been brainwashed by neoliberalism to think that any distinction between activities within a market economy is marxism.

If I create a new product that improves people's lives and enriches me in the process, then I have achieved the pinnacle of capitalism's promise. I have - by helping myself - helped others. If I buy finite resource with 100% borrowed money and then rent it back to someone who's only disadvantage is that they not have access to as much debt as me, then I am engaging in completely parasitic and monopolistic behaviour. The idea that it is difficult/ unwise to distinguish between these two activities is a blindspot in our culture that never ceases to shock and depress me.

There are different types of BTL investors.

My parents-in-law would never have bought a BTL flat (indeed they were massively against it) however they had several hundred k sitting in a bank account earning 1%.

If they'd shopped around they'd be getting 2% at best in a savings account (maybe slightly more)

If they'd bought shares they might have gone up, maybe down and with dividends they'd be making maybe 4%. However in living memory the stock market has lost and recovered 50% of its value.

With the flat they bought they get a yield of about 4% (after costs and contingency), price might go up or down (up about £50k so far) in the long term.

Put it this way if they could get 4-5% in a savings account - like was common up to 2008 - there is no way they'd own a BTL flat. But as they want an income in retirement BTL is a sensible way of getting a BTL income.

Now levereged BTL for flats in Bulgaria is another matter...

[pipllman]

Maybe the banks have been strengthening - they surely should have done over the last 7 years or so

However, until the moment comes, we can only make a best guess based on the publicly available information

I am not convinced that they all have been as prudent as they would have us believe.

I see things like Paragon offering a retail saving bond with a 6% coupon, when every mortgage they offer on their product list has an APR of 5.7% or less (right down to 4.3% in fact) and I think WTAF is going on there?

Just as some borrowers have ignored the opportunity to get to grips with their situation, I really won't be surprised if some lenders have too

I think some have taken risks with their share of the QE pot that might have big downsides, as well as big upsides

I also think that packaging up and selling of mortgages - to reduce a lender's risk - has remained a big part of the lenders' business models. Quite how that ends up unravelling also remains to be seen.

Moreover, the longer low interest rates and QE monies persist in the system, the more they will get used to that world. Pulling them off the teat of the taxpayer gets harder...

You are correct that I am not calling for BTL to be regulated to the same extent as OO is via MMR (which I think should be stopped too): banks should be free to lend as they wish, with minimal interference by government and, if they go so far as to go skint, then skint they should go. Only retail deposits should be guaranteed by the government.

Lenders and borrowers should stand or fall on the deals they do. In almost all cases, that puts the onus on the lender to be the professional in the situation and to be responsible for making the decision to lend, or not.

[Neverwhere]

Maybe the banks have been strengthening - they surely should have done over the last 7 years or so

However, until the moment comes, we can only make a best guess based on the publicly available information

I am not convinced that they all have been as prudent as they would have us believe.

I see things like Paragon offering a retail saving bond with a 6% coupon, when every mortgage they offer on their product list has an APR of 5.7% or less (right down to 4.3% in fact) and I think WTAF is going on there?

Just as some borrowers have ignored the opportunity to get to grips with their situation, I really won't be surprised if some lenders have too

I think some have taken risks with their share of the QE pot that might have big downsides, as well as big upsides

I also think that packaging up and selling of mortgages - to reduce a lender's risk - has remained a big part of the lenders' business models. Quite how that ends up unravelling also remains to be seen.

Moreover, the longer low interest rates and QE monies persist in the system, the more they will get used to that world. Pulling them off the teat of the taxpayer gets harder...

You are correct that I am not calling for BTL to be regulated to the same extent as OO is via MMR (which I think should be stopped too): banks should be free to lend as they wish, with minimal interference by government and, if they go so far as to go skint, then skint they should go. Only retail deposits should be guaranteed by the government.

Lenders and borrowers should stand or fall on the deals they do. In almost all cases, that puts the onus on the lender to be the professional in the situation and to be responsible for making the decision to lend, or not.

Not under an unregulated system it doesn't. That would simply put the onus on lenders to make sure that the decision to lend is good for them, the lender. That doesn't mean that it would necessarily be good for the borrowers. Anyone who assumes that someone trying to sell them something has their best interests at heart is deluding themselves.

Take late entrant buy-to-let for instance. Many of the mainstream lenders have remained in this sector by limiting portfolio sizes and LTVs and requiring the borrower to have other assets (their own home) and/or other income. There is very little chance that the lenders could lose out on these deals. There is every chance that they could be bad for their borrowers' long term financial health.

Part of the reason that challenger banks like Paragon can suck up market share is because the large lending institutions are in the main leaving the really high risk, subprime borrowers to them. Noone cares what happens to Paragon. They can go bust and get rolled into UKAR easy as, it's not likely to cause any wider problems to the economy.

Borrowers may have gotten bailed out in the past, but only because the lenders involved couldn't handle their sides of the losses and were deemed to be too big to fail. This doesn't seem to be the case any more but if it is then the BoE don't have anywhere to go on rates - which is why they're discussing NIRP despite the likely unpalatable socio-political consequences - and so the degree to which they could directly bail out borrowers is limited.

[Si1]

I'm offended but not surprised that even a coherent and generally reasonable BTLr thinks that the due diligence for general BTL should be asymmetrical, that somehow as a market it's too special to fail, or rather BTLrs are too special to take the consequences of their own actions, if I have extended the logic correctly.

[pipllman]

Your logic has gone further than mine.

I repeatedly said both parties to the deal should stand or fall on the deals they make. But that the lender, by choosing to lend, should reflect that it is the professional in the relationship: if the deal goes wrong from its perspective, it should suck it up. Not look to the taxpayer for a bail out.

Lenders can't say, with their qualified bankers and banking licence, that it isn't fair when an unregulated loan it willingly entered into goes bad.

Neither can btl nor should OO.

But yes, based on the fact that the banks have been bailed by the taxpayer and could be bailed by the taxpayer again, the due diligence should be asymmetrical:

- the BTL only needs to do enough to convince the bank to lend to her and that she recognises what she is risking (all her assets and future wealth essentially) if she can't keep her side of the deal.

- the bank needs to do sufficient to make sure it doesn't need a tax payer bail out if its loan book goes bad - that likely requires more analysis by the lender than the borrower

In no way is that to protect the BTL, or in fact the bank, but it is to protect the taxpayer and the broader economy.

Edited September 20, 2015 by pipllman

[frederico]

Cake and eat it

[pipllman]

Cake and eat it

That is what both sides had in 2008/2009. On a China plate with a silver fork and cream too.

It was wrong

But it could be repeated

[canbuywontbuy]

We've gone in 24 hours from booming Britain on the cusp of interest rate rises, to abolishing cash for the impeding recession and likely negative interest rates. WTF is going on peoples? Do they not even have a loose agreement between themselves as to what they say so at least they look like they are on the same hymn sheet? I'm sure this FUD confusion is a deliberate ploy then?. If not you could only assume they are clueless fecking idiots.

Same in the US. "Everyone" (read: propagandist media) predicted the Fed to raise their rate by 0.25% on the 17th. Didn't happen of course, and instead the Fed - for the first time in their history - put a couple of dots in NIRP territory on their future predictions on where they thought rates might go. Utterly predictable given the key fundamentals of the US (doubling their debt since 2008, just like the UK).

[Neverwhere]

Your logic has gone further than mine.

I repeatedly said both parties to the deal should stand or fall on the deals they make. But that the lender, by choosing to lend, should reflect that it is the professional in the relationship: if the deal goes wrong from its perspective, it should suck it up. Not look to the taxpayer for a bail out.

Lenders can't say, with their qualified bankers and banking licence, that it isn't fair when an unregulated loan it willingly entered into goes bad.

Neither can btl nor should OO.

But yes, based on the fact that the banks have been bailed by the taxpayer and could be bailed by the taxpayer again, the due diligence should be asymmetrical:

- the BTL only needs to do enough to convince the bank to lend to her and that she recognises what she is risking (all her assets and future wealth essentially) if she can't keep her side of the deal.

- the bank needs to do sufficient to make sure it doesn't need a tax payer bail out if its loan book goes bad - that likely requires more analysis by the lender than the borrower

In no way is that to protect the BTL, or in fact the bank, but it is to protect the taxpayer and the broader economy.

Buy-to-let is a business to business loan, both sides are expected to be professional. If buy-to-letters haven't been professional than they need to eat their losses.

If lenders have found a way to structure buy-to-let loans that means that the lender is highly unlikely to lose out at all but the buy-to-letter is very vulnerable to losing everything - and the mainstream lenders appear to have done this - and thereby helped protect themselves from the need for further bailouts then they have done all of the due diligence that they need to do.

Buy-to-let is currently an unregulated market and therefore there is no asymmetrical responsibility weighted towards the behaviour of the lender because asymmetrical responsibility can only be enforced by regulation. If buy-to-let lending were not an unregulated market then I strongly suspect that it would not exist at all as its current modus operandi is to arbitrage the difference between what a landlord can borrow against their tenant's income (in the form of rent) in an unregulated market against what their tenant can borrow against their own income in a regulated market (for owner occupation).

Lenders are perfectly within their rights to gouge buy-to-letters as much as they can, especially if it strengthens their overall financial position.

[winkie]

I do understand bland's book. I don't agree with it all.

Banks chasing BTL business with reduced rates, reduced fees, higher LTVs, only rent income needed, bigger commissions to introducers etc. means that they think it is profitable for them as lenders

I agree that doesn't need to mean that the lenders think it is profitable for the borrowers

What it does show, imo, is that lenders are very keen to lend and given that MMR has perhaps reduced the OO market, that they are going after the unregulated BTL sector in their quest to keep on lending (gaining market share)

Even though the market is unregulated and BTL should be regarded as informed borrowers, I still think there should be some onus on the lender to lend responsibly - which means that if it all goes mammaries up (again) and they find that their BTL customers can't pony up after all, that they don't look to the taxpayer to bail them out (again)

The BTL, borrowing in an unregulated market, should have no comeback either. If it becomes necessary then lenders should (for as long as they the lenders may remain solvent and in existence) pursue the borrowers relentlessly to cover their obligations.

Both parties to the deal should be allowed to stand or fall on the basis of the deals they agreed...

Alas, I can see the scenario where a taxpayer bail out or a saver bail in could happen again as a result of the amount of questionable lending that seems to be going on just now.

I hope I am wrong on that.

So what I would like to know is what is stopping someone buying a BTL but living in it themselves......any stats? Edited September 20, 2015 by winkie

[billybong]

The Bank of England may need to push its interest rates into negative territory to fight off the next recession, its chief economist has said.

Andy Haldane, one of the Bank’s nine interest rate setters, made the case for the "radical" option of supporting the economy with negative interest rates, and even suggested that cash could have to be abolished.

The Conservatives might not have won the general election if the BoE had admitted before the general election that the economy was in such poor shape after their 5 years of leading the coalition.

Edited September 20, 2015 by billybong

[Si1]

The Conservatives might not have won the general election if the BoE had admitted before the general election that the economy was in such poor shape after their 5 years of leading the coalition.

Good point

[canbuywontbuy]

The Conservatives might not have won the general election if the BoE had admitted before the general election that the economy was in such poor shape after their 5 years of leading the coalition.

The BoE are - to all intents and purposes - part of the incumbent government, regardless of their "official" position. They paint a rosy picture when it's expedient, and a not-rosy picture when it's expedient. However they paint the picture, they know the fundamentals, and they know they can't raise rates.

[pipllman]

Buy-to-let is a business to business loan, both sides are expected to be professional. If buy-to-letters haven't been professional than they need to eat their losses.

If lenders have found a way to structure buy-to-let loans that means that the lender is highly unlikely to lose out at all but the buy-to-letter is very vulnerable to losing everything - and the mainstream lenders appear to have done this - and thereby helped protect themselves from the need for further bailouts then they have done all of the due diligence that they need to do.

Buy-to-let is currently an unregulated market and therefore there is no asymmetrical responsibility weighted towards the behaviour of the lender because asymmetrical responsibility can only be enforced by regulation. If buy-to-let lending were not an unregulated market then I strongly suspect that it would not exist at all as its current modus operandi is to arbitrage the difference between what a landlord can borrow against their tenant's income (in the form of rent) in an unregulated market against what their tenant can borrow against their own income in a regulated market (for owner occupation).

Lenders are perfectly within their rights to gouge buy-to-letters as much as they can, especially if it strengthens their overall financial position.

Yes, both parties to the loan need to eat any losses arising

I would suggest that the lender structuring loans so that they are highly unlikely to lose out is exactly the asymmetrical responsibility I want to see. That would make qualifying for the loan harder and require the borrower to conduct more due diligence too. Overall result = lower risk of the taxpayer being looked to for a bail out if it goes wrong. Pipllman happy.

However, I see evidence to the contrary just now: lower qualifications needed for BTL loans, higher LTV, lower fees, more commission to introducers. If lenders really are making loans on the basis that their financial position is strong enough to suffer any losses arising from the loan book, then great. But I am not sure that is the case. I think lenders are pushing to lend as much as they can again and that the quality of the loan book (or derivatives based on it) is slipping as a result.

[gf3]

If I worked in a bank I wouldn't care if the loans went bad after I had got a couple of million in bonuses.