Mumsnet Poster Not Getting The Rent Paid In Full And Not Happy

[eek]

I'm not sure that is the reasoning. As an owner-occupier the mechanics of repossession are a bit tricky, with the BTL its much more straightforward. The banks see the houses as the asset upon which the loan is secured. The ease with which you can get hold of and dispose of that asset matter.

Also, and this may not be the case here, it would be difficult for a mug punter fitting his profile to get hold of an interest-only loan in today's mortgage market.

It's a mess, but the most sensible way to fix it is to make the rates paid on interest-only BTL higher than rates to paid by owner-occupiers with repayment mortgages. Changes in the details of risk-weighting of bank loan assets look likely to initiate that process, beginning at the end of this year.

I take it you live in Northern Ireland? Here we haven't had rates for 20 odd years and council tax is based on occupants not the property...

[thecrashingisles]

They should create a sister site MumsDebt.

[Bland Unsight]

I take it you live in Northern Ireland? Here we haven't had rates for 20 odd years and council tax is based on occupants not the property...

The interest rate on the mortgage was the intended meaning.

[Blod]

The OPs BTLers friend's problem is his age. He's not really asking for a mortgage as he's not even working. It'll be very interesting how any lender will be able to dress up a loan and call it a mortgage. Love to know what finally happens.

[eek]

The interest rate on the mortgage was the intended meaning.

Btl loans rates higher than oo loans. The few btl rates that seem to match oo rates have hefty £2k+ fees attached

[Bland Unsight]

Btl loans rates higher than oo loans. The few btl rates that seem to match oo rates have hefty £2k+ fees attached

I think we're coming at this from slightly different perspectives. I am hoping that BCBS risk-weights may take capital charges against interest-only BTL loan assets to 15 times their current A-IRB level and that as a consequence at some point after January 2017, BTL mortgage rates might start to move away from their present level (SVRs at about 5% and teaser rates (i.e. 2 year fixes) about 3.5%) to double those levels - at a time when rates to owner-occupiers may fall slightly as capital charges against those loan assets fall a little, off-setting the BTL changes for the banking sector as a whole. We've discussed all this in great detail on the relevant threads.

Hence when I say BTL rates higher, I don't mean some comical little 100 bps to 200 bps difference, I mean OOer SVRs at 4% and BTL SVRs at 10% (for interest-only BTL at 75% LTV), though this is what I am hoping for as the possible and plausible worst case scenario for BTL borrowers, should Basel 3 be stringently implemented as part of a concerted attempt to drive high-LTV interest-only BTL out of the UK housing market.

Edited May 3, 2016 by Ghost Bird

[spyguy]

I think we're coming at this from slightly different perspectives. I am hoping that BCBS risk-weights may take capital charges against interest-only BTL loan assets to 15 times their current A-IRB level and that as a consequence at some point after January 2017, BTL mortgage rates might start to move away from their present level (SVRs at about 5% and teaser rates (i.e. 2 year fixes) about 3.5%) to double those levels - at a time when rates to owner-occupiers may fall slightly as capital charges against those loan assets fall a little, off-setting the BTL changes for the banking sector as a whole. We've discussed all this in great detail on the relevant threads.

Hence when I say BTL rates higher, I don't mean some comical little 100 bps to 200 bps difference, I mean OOer SVRS at 4% and BTL SVRS at 10% (for interest-only BTL at 75% LTV), though this is what I am hoping for as the possible and plausible worst case scenario for BTL borrowers, should Basel 3 be stringently implemented as part of a concerted attempt to drive high-LTV interest-only BTL out of the UK housing market.

I'd hope that IO loans are effectively banned for IO BTL loans.

Retrospectively, too.

Long term commercial IO loans have no place in a regulated banking system.

They are nuts.

[Killer Bunny]

The only regulation banks need is self regulation and criminal action if they break the laws.

We have neither hence we're the way we are

[TheCountOfNowhere]

The only regulation banks need is self regulation and criminal action if they break the laws.

We have neither hence we're the way we are

What he said ^^^^

[zugzwang]

The only regulation banks need is self regulation and criminal action if they break the laws.

We have neither hence we're the way we are

Not true. Markets are incapable of self regulation. Bigger players squeeze out or take over their smaller rivals then imitate each other. Because they share the same structural shortcomings, when one fails they all fail. Result: systemic collapse.

Effective criminal action might help reduce the propensity to take risks.

[zugzwang]

They should create a sister site MumsDebt.

Veh good.

[eek]

I think we're coming at this from slightly different perspectives. I am hoping that BCBS risk-weights may take capital charges against interest-only BTL loan assets to 15 times their current A-IRB level and that as a consequence at some point after January 2017, BTL mortgage rates might start to move away from their present level (SVRs at about 5% and teaser rates (i.e. 2 year fixes) about 3.5%) to double those levels - at a time when rates to owner-occupiers may fall slightly as capital charges against those loan assets fall a little, off-setting the BTL changes for the banking sector as a whole. We've discussed all this in great detail on the relevant threads.

Hence when I say BTL rates higher, I don't mean some comical little 100 bps to 200 bps difference, I mean OOer SVRs at 4% and BTL SVRs at 10% (for interest-only BTL at 75% LTV), though this is what I am hoping for as the possible and plausible worst case scenario for BTL borrowers, should Basel 3 be stringently implemented as part of a concerted attempt to drive high-LTV interest-only BTL out of the UK housing market.

Why would Basel 3 treat loans secured on the same asset class (property) differently? The security is the same (heck the security on a BTL mortgage for an older amateur landlord with one or 2 BTL's and a fully paid up home may be better than a newly bought OO)..

[Bland Unsight]

Why would Basel 3 treat loans secured on the same asset class (property) differently? The security is the same (heck the security on a BTL mortgage for an older amateur landlord with one or 2 BTL's and a fully paid up home may be better than a newly bought OO)..

Ask the BCBS.

[eek]

I'd hope that IO loans are effectively banned for IO BTL loans.

Retrospectively, too.

Long term commercial IO loans have no place in a regulated banking system.

They are nuts.

There is no need to make it retrospective. Just make getting new IO loans impossible and wait for the market to ramp up their SVR for BTL loans...

[eek]

Ask the BCBS.

Nowt in http://www.bis.org/bcbs/publ/d347.pdf Anywhere else I can look?

[Bland Unsight]

Nowt in http://www.bis.org/bcbs/publ/d347.pdf Anywhere else I can look?

http://www.bis.org/publ/bcbs230.pdf

Have fun.

[Bland Unsight]

Nowt in http://www.bis.org/bcbs/publ/d347.pdf Anywhere else I can look?

If you prefer pictures:

[eek]

If you prefer pictures:

Nothing there that separates an asset class into 2 different asset classes based on type of loanee.... I might be being thick but unless my google foo has utterly betrayed me I see nothing that separates residential loans in the way you describe...

And all the above shows is why as asset prices inflate you should reduce the allowed percentage of all securities based on that asset type...

[Neverwhere]

Nowt in http://www.bis.org/bcbs/publ/d347.pdf Anywhere else I can look?

Buy-to-let seems likely to fall under either IPRE or ADC, dependent on whether or not it's interest only. From your link:

For exposures secured by real estate, the Committee proposes to use the loan-to-valuation (LTV) ratio as the main risk driver for risk weighting purposes, and to use a three-category classification (from less to more risky) as follows:

1. General treatment for exposures secured by real estate where repayment is not materially dependent on rent/sale of the property;

2. A more conservative treatment for exposures secured by real estate where repayment is materially dependent on cash flows (ie rent/sale) generated by the property. Specialised lending (corporate) exposures assigned to “income-producing real estate” under the IRB approach would be classified under this category;

3. A conservative, flat risk weight for specialised lending real estate exposures defined as “land acquisition, development and construction” (ie loans to companies or SPVs, unfinished property meeting the definition of specialised lending).

[. . .]

Land acquisition, development and construction (ADC) [. . .] exposures will also include loans to companies or individuals to finance the acquisition of finished property where the repayment of the loan depends on the future uncertain sale of the property.

[Neverwhere]

Nothing there that separates an asset class into 2 different asset classes based on type of loanee.... I might be being thick but unless my google foo has utterly betrayed me I see nothing that separates residential loans in the way you describe...

And all the above shows is why as asset prices inflate you should reduce the allowed percentage of all securities based on that asset type...

With buy-to-let the interest and capital repayments are as dependent on the property market as the security.

With owner occupiers the interest and capital repayments tend to be independent of the property market. They are effectively more diversified.

Also, speculators tend to behave differently to people who are buying homes to live in, and so different risks attach.

[Bland Unsight]

Nothing there that separates an asset class into 2 different asset classes based on type of loanee.... I might be being thick but unless my google foo has utterly betrayed me I see nothing that separates residential loans in the way you describe...

And all the above shows is why as asset prices inflate you should reduce the allowed percentage of all securities based on that asset type...

I don't know about thick. It's not your google foo that is letting you down, it's your (reasonable) unwillingness to read the document that you linked to. I misunderstood you. I thought you meant that there was "nowt" in the consultation about the guiding principles - i.e. the rationale.

There are two entirely separate questions here.

1. Does the BCBS consultation treat loans secured on residential property differently depending on whether the borrower proposes to rent it out or live in it?
2. Why does the BCBS do this?

The answer to the first question is "Yes", the document to which you've already linked describes it. If you've read the document and can't understand it, I'm not really sure I can help you. It's boring, but not difficult.

The answer to the second question is explained by the chart, the principles to which I've linked and by the fact that Fergus Wilson has about 800 shit houses in and around Ashford, Kent.

I really think that you should read the BTL regulation thread, here is somewhere to start, and the BCBS risk-weights thread if you want to see how this is being responded to at the moment in the UK. If you have any questions, post them and I'm sure somebody will try to answer them.

[porca misèria]

If you prefer pictures:

Nice little summary of why - back in the pre-crash days when interest rates were an economic instrument - they needed to be linked to M4 money supply rather than a meaningless consumer price index better linked to the rise of China than to the UK economy.

Ideally linked by formula to take the politics out, so expansion in credit is automatically damped by rising interest rates and vice versa.

[Bland Unsight]

I'd hope that IO loans are effectively banned for IO BTL loans.

Retrospectively, too.

Long term commercial IO loans have no place in a regulated banking system.

They are nuts.

One of the interesting things about the West Brom case is the the claimant's counsel argued at the High Court that the fact that the claimant had been offered a 25 year mortgage meant that the contract term allowing West Brom to call in the loan with a month's notice at the end of the fixed rate period was unenforceable. (Mr Justice Teare disagreed.)

There's a great Lincoln quote, "How many legs does a dog have if you call his tail a leg? Four. Saying that a tail is a leg doesn't make it a leg."

If the Court of Appeal backs Teare then it's pretty clear that the mortgage had little in common with the types of mortgage offered to owner-occupiers; it's basically a bridging loan that is rolled over a month at a time, at the lender's discretion, once it reaches the end of the two-year fixed rate period. If Mark Alexander wins, the banks will be stuck with billions of pounds of mortgages that may be about to become very expensive in terms of risk-weighted capital.

What fascinates me is that you have this ungodly SNAFU, which ought to have been unwound post-2008, whereas in fact we've put an extra £90bn or so of this dogshit on the banks' balance sheets.

Edited May 3, 2016 by Ghost Bird

[spyguy]

There is no need to make it retrospective. Just make getting new IO loans impossible and wait for the market to ramp up their SVR for BTL loans...

Well, its going to have to be retrospective.

Thebanks will have to adjust their capital for the laons they've made.

And as most of those loans are IO then its going to be a chunky adjustment.

[spyguy]

One of the interesting things about the West Brom case is the the claimant's counsel argued at the High Court that the fact that the claimant had been offered a 25 year mortgage meant that the contract term allowing West Brom to call in the loan with a month's notice at the end of the fixed rate period was unenforceable. (Mr Justice Teare disagreed.)

There's a great Lincoln quote, "How many legs does a dog have if you call his tail a leg? Four. Saying that a tail is a leg doesn't make it a leg."

If the Court of Appeal backs Teare then it's pretty clear that the mortgage had little in common with the types of mortgage offered to owner-occupiers; it's basically a bridging loan that is rolled over a month at a time, at the lender's discretion, once it reaches the end of the two-year fixed rate period. If Mark Alexander wins, the banks will be stuck with billions of pounds of mortgages that may be about to become very expensive in terms of risk-weighted capital.

What fascinates me is that you have this ungodly SNAFU, which ought to have been unwound post-2008, whereas in fact we've put an extra £90bn or so of this dogshit on the banks' balance sheets.

It really should not have happened. I mean, building socieities lending IO loans to BTLers - its not what BS were designed for!

And the issue that the likes of Nationwide are screwed when it comes to raising new capital.

2008 should have seen the BoE go 'This is nuts!' Get all your BTL on a repayment basis. Raise he IR until they leave, pay back the loan or go bust.