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Peter Hun

"The government is trying very hard to kill the buy-to-let market”

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PRA threatens big banks to rein in buy-to-let

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Big banks have been threatened to rein in buy-to-let by the Prudential Regulation Authority in person in the past two weeks, the Financial Times has reported.

Three separate banks reported the PRA visiting to express concerns about the buy-to-let market, with the message being “we think you have enough buy-to-let loans”.

While the PRA did not explicitly tell banks not to extend buy-to-let loans this was apparently implied.

Christian Faes, chief executive of LendInvest, said: “The government is trying very hard to kill the buy-to-let market.”

The PRA is stress testing buy-to-let loans from 1 January 2017 to a minimum of 5.5% for the first five years of the mortgage.

 

http://www.mortgageintroducer.com/pra-threatens-big-banks-rein-buy-let/#.WDx5pVxswmE

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10 minutes ago, One-percent said:

My guess is that government is trying to get the little people out of the market so as to make room for their friends in the citeh 

This

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10 minutes ago, One-percent said:

My guess is that government is trying to get the little people out of the market so as to make room for their friends in the citeh 

No.

Any model of banks is screaming BTL as high risk.

It sounds stupid but banks were allowed to record BTL as low risk initially. Mainly as theyd never had any BTL lending, so their models showed it was low risk.

Now, with Basel3 coming in, and hard leverage caps, and much high captial requirements, IO BTL is looking totally toxic.

Oh, and all those low risk BTL loans blew up in their faces. They sunk B+B and the Scarborough BS at least.

 

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2 minutes ago, darwin said:

This

No.

The city these days - and more so i nthe future - will is justsoftware trading.

You muight want to have a look at bank share prices to see how mcuh clout they have ....

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2 minutes ago, goldbug9999 said:

Hopefully this will at some point create a vicious cycle of lower prices causing risk weights to rise, causing lower BTL lending, causing lower prices, causing ... etc etc.

We are already beyond the point of no return for IO BTL.

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City employees are intermediaries.

The idea that there's lots of institutional money wanting to flood into shitty depreciating assets offering no income after all costs and attractive because you hope that there's an infinite number of greater fools for ever requires the "Citeh" to both be the geniuses running the show and the biggest mugs that ever there was. Which is it?

We'll see some institutional money in BTL. They're going to buy up the UKAR BTL book over the next 18 months, having first forced a massive discount. The City as intermediaries are coming alright, but as repo men.

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46 minutes ago, spyguy said:

No.

Any model of banks is screaming BTL as high risk.

It sounds stupid but banks were allowed to record BTL as low risk initially. Mainly as theyd never had any BTL lending, so their models showed it was low risk.

Now, with Basel3 coming in, and hard leverage caps, and much high captial requirements, IO BTL is looking totally toxic.

Oh, and all those low risk BTL loans blew up in their faces. They sunk B+B and the Scarborough BS at least.

 

Agree with the sentiment, but one of the problems is that the models do not show the risk of BTL, because the catastrophic collapse was averted by bailouts. 

Models that use history as a guide are implicitly assuming that BTL is low risk because it will always be bailed out - they assume history will repeat and that is the history.  Moral hazard is baked into the time-series inputs. 

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The banks already own all these IO BTL houses, the so-called "landlords" are just unpaid and not particularly competent property managers.

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1 minute ago, Dorkins said:

The banks already own all these IO BTL houses, the so-called "landlords" are just unpaid and not particularly competent property managers.

I really think this is the key to it. The banks like to lend against property. Buy-to-let enabled the banks to move millions and millions of homes that would have been owned-outright over time onto interest-only mortgages where the banks collect the interest forever. Great for banks, not so great for communities.

There's no way for the banks to do it directly. They need willing intermediaries the buy-to-let 'investors'.

"Don't sell your old flat, keep it. You can't go wrong with property."

"Don't invest your money in shares, you might lose it. Invest it in property - with a lot of leverage from us. You can't go wrong with property."

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41 minutes ago, Bland Unsight said:

I really think this is the key to it. The banks like to lend against property. Buy-to-let enabled the banks to move millions and millions of homes that would have been owned-outright over time onto interest-only mortgages where the banks collect the interest forever. Great for banks, not so great for communities.

There's no way for the banks to do it directly. They need willing intermediaries the buy-to-let 'investors'.

"Don't sell your old flat, keep it. You can't go wrong with property."

"Don't invest your money in shares, you might lose it. Invest it in property - with a lot of leverage from us. You can't go wrong with property."

 I suspect it hasn't escaped you that bank can repo the house from the BTL and sell it to an OO at 25% (or more) less than the BTL landlord paid for it without crystallising a loss.  If there is a deficit the BTLer remains on the hook for the shortfall.

 

What a great business model.....for the lender.

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5 minutes ago, Exiled Canadian said:

 I suspect it hasn't escaped you that bank can repo the house from the BTL and sell it to an OO at 25% (or more) less than the BTL landlord paid for it without crystallising a loss.  If there is a deficit the BTLer remains on the hook for the shortfall.

 

What a great business model.....for the lender.

I reckon that with these legacy Bradford & Bingley Mortgage Express BTL loans on base +1.75% then whoever picks them up won't be paying the book value. If you could pick up a loan which is presently 75% LTV at this moment but you were only paying say 75 pence on the pound to get it (for the sake of argument) you could be staking £56 of your investors money to get a loan on an asset valued at £100. First sniff of trouble, leveraged landlord thrown under the bus, sell the asset.

Fortunately for the leveraged landlords, we never have recessions and the rest of their portfolio, which is not mortgaged on these terms, will never put any pressure on their "property business" (as the ITTOIA 2005 puts it).

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2 minutes ago, Bland Unsight said:

I reckon that with these legacy Bradford & Bingley Mortgage Express BTL loans on base +1.75% then whoever picks them up won't be paying the book value. If you could pick up a loan which is presently 75% LTV at this moment but you were only paying say 75 pence on the pound to get it (for the sake of argument) you could be staking £56 of your investors money to get a loan on an asset valued at £100. First sniff of trouble, leveraged landlord thrown under the bus, sell the asset.

Fortunately for the leveraged landlords, we never have recessions and the rest of their portfolio, which is not mortgaged on these terms, will never put any pressure on their "property business" (as the ITTOIA 2005 puts it).

Furthermore the BoE has been quite clear that BTL is an "Investors Market" - which means no consumer financial services protection.  It's dog eat dog, and when the bank throws in the towel and sells its book to a distressed debt fund (possibly called Cerberus) you'll find out who the biggest dog is (clue for BTLers - it's not you!).

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4 hours ago, One-percent said:

My guess is that government is trying to get the little people out of the market so as to make room for their friends in the citeh 

 

4 hours ago, darwin said:

This

 

Why did the corporate show no significant interest in times past in residential property, and buying up all the homes?   Back when they were cheap/level.

By this 'logic' of path ahead being all a plan for corporate interests buying up all the homes in any coming event, there would be no homeowners, and there are millions of them.  (And many who own outright, with no risk to bank balance sheets in a HPC.) 

Yeah no opportunity for renter-savers. :rolleyes:

If the Gov wants to do anything it wants HPC followed by fresh lending to younger people for homeownership.  Votes and getting people having a stake in society.   Even more importantly, multi-decade lending on lower house prices, and high transaction levels, implies good profits for banks imo.   Values are found at the margin, between active sellers and buyers.

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10 hours ago, Bland Unsight said:

I reckon that with these legacy Bradford & Bingley Mortgage Express BTL loans on base +1.75% then whoever picks them up won't be paying the book value. If you could pick up a loan which is presently 75% LTV at this moment but you were only paying say 75 pence on the pound to get it (for the sake of argument) you could be staking £56 of your investors money to get a loan on an asset valued at £100. First sniff of trouble, leveraged landlord thrown under the bus, sell the asset.

Fortunately for the leveraged landlords, we never have recessions and the rest of their portfolio, which is not mortgaged on these terms, will never put any pressure on their "property business" (as the ITTOIA 2005 puts it).

I think the amount paid will depend very much on how much capital Basel 3 requires the buyer of those loans to hold.

My inkling is that the capital required may be enough to make those loans very unattractive to possibly buyers even at an additional 20-30% discount off book value.

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