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Sancho Panza

Buy-to-let lending at Nationwide plunges from £2.2bn to £900mn yoy

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Telegraph 10/2/17

'Nationwide has suffered a plunge in buy-to-let lending and a drop in profits as Government measures to crackdown on landlords and rock bottom interest rates take their toll on the country’s biggest building society.

Buy-to-let lending at the mutual dropped to £900m in the nine months to the end of December, from £2.2bn a year ago, while pre-tax profits slid by 16pc to £946m.

Mark Rennison, Nationwide’s finance director, said the building society had moved quickly to tighten lending criteria in the wake of the stricter tax regime on buy-to-let landlords unveiled by the Government last year.

George Osborne, the former Chancellor, announced changes to tax relief in an effort to stop the buy-to-let market from overheating. Mr Rennison said the overhaul, combined with last year’s stamp duty changes, had already hit the industry.

“We have seen the buy to let market cool, to some degree,” he said. “It’s a smaller market today than it was a year ago, quite a bit smaller probably in London and the south east. I don’t think it’s a short-term effect.”

It is a blow to Nationwide, which is the UK’s second-biggest buy-to-let lender behind Lloyds Banking Group. It comes as the mutual, like other lenders, wrestles with the low interest rate environment that is squeezing profits and fierce competition in mortgage lending.

Its net interest margin - the key difference between the interest it pays to savers and the interest it charges on loans - fell to 1.33pc, from 1.56pc at the end of 2015. Mr Rennison said it could drift down to 1.30pc by March 31, the end of the mutual’s financial year.

“I think profitability may be a little bit lower in the next couple of financial years,” he forecast. “But if it is it will be modestly so and certainly it will be within the range of outcomes that we would be very comfortable managing.”

Economic data since last June’s EU referendum have so far shown the Brexit vote has not hit the UK economy.

However, the pound’s sharp depreciation following the referendum is pushing up inflation and Mr Rennison said there is evidence household incomes “are coming under some sign of pressure”.

“We think that ultimately will feed into more caution from consumers, probably lower levels of consumer spending and that’s been a big driver of economic growth,” he said.

“And therefore we think economic activity in the UK over the next 12 to 18 months will begin to slow, we don’t think it’s going to be hugely pronounced but we do think it will slow.”'

 

 

Possibly explains inventory build in some Londinium postcodes.Worth noting that across the country the worst gross yields are in prime London................................

Edited by Sancho Panza

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Nationwide upped its interest coverage ratio in BTL to 145% back in Spring last year, well ahead of when they were required to make changes. 

Considering how hard it is to make BTL work at that coverage, especially in low yield areas like London, it is no surprise that lending slumped. 

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Quote

It is a blow to Nationwide... It comes as the mutual, like other lenders, wrestles with the low interest rate environment that is squeezing profits and fierce competition in mortgage lending.

They've already taken action to restore their profit margins, with another round of swingeing cuts to interest rates on their savings accounts coming along with a "reprice" on March 1st:

http://www.nationwide.co.uk/support/support-articles/rates-fees-charges/march-reprice

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"Its net interest margin - the key difference between the interest it pays to savers and the interest it charges on loans - fell to 1.33pc, from 1.56pc at the end of 2015. Mr Rennison said it could drift down to 1.30pc by March 31, the end of the mutual’s financial year. "

....Don't they collect funds to shore up the balance sheet from Carney's magic hat..? and magic out of nothing themselves the money they lend...since when did they lend out depositor's money??

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56 minutes ago, hotairmail said:

Still too much. There is no way a mutual should be lending to landlords. What on earth do they think they were set up for....it was to escape these grasping gougers. Nationwide should be ashamed of themselves. As for their cuddly adverts, the greedy lying crnts can f*ck right off.

This.

I expect Nw to go bust. They cant raise capital. Theyve fckoff their depositors.

Itll be brutal.

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51 minutes ago, hotairmail said:

Still too much. There is no way a mutual should be lending to landlords. What on earth do they think they were set up for....it was to escape these grasping gougers. Nationwide should be ashamed of themselves. As for their cuddly adverts, the greedy lying crnts can f*ck right off.

Exactly and they only got to the size they are by taking over lots of smaller Building Societies, which were presumably less profitable for the men in suits.

The loss of so many mutual societies is a crime, and I don't think many people realise what they have lost

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That fall in the net interest margin has got to be a worry. Branch closures here we come! Maybe they'll keep them open while cutting their prices

Its net interest margin - the key difference between the interest it pays to savers and the interest it charges on loans - fell to 1.33pc, from 1.56pc at the end of 2015. Mr Rennison said it could drift down to 1.30pc by March 31, the end of the mutual’s financial year.

“I think profitability may be a little bit lower in the next couple of financial years,” he forecast. “But if it is it will be modestly so and certainly it will be within the range of outcomes that we would be very comfortable managing.”

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4 hours ago, Ash4781 said:

That fall in the net interest margin has got to be a worry. Branch closures here we come! Maybe they'll keep them open while cutting their prices

 

 

They could charge more for their mortgages?

Mostr mortgages are not going anywhere.

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I received a letter today saying that the interest rate on the 5k I have invested in an isa is reducing from 1 percent to .75. Thank you nationwide, on the side of its members. I'm now anticipating the letter which tells me the rate is going negative. 

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Nationwide raised 500mn in 2014 through issuing debt.

https://n/content/8da4a898-5377-11e3-b425-00144feabdc0?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

Apparently this is through a special debt instrument related designed in conjunction with the regulator.

So the technical answer to the question is that there IS a tool which nationwide can use, and have used, to increase its capital.

In reality how appealing that debt will be if or when nationwide is facing the abyss. month on month defaults and increasing capital requirements will go hand in hand. In the end they will probably face a significant renegotiation of a large chunk of debt that simply wont be appealing to the market and will fail.

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45 minutes ago, regprentice said:

Nationwide raised 500mn in 2014 through issuing debt.

https://n/content/8da4a898-5377-11e3-b425-00144feabdc0?segmentid=acee4131-99c2-09d3-a635-873e61754ec6

Apparently this is through a special debt instrument related designed in conjunction with the regulator.

So the technical answer to the question is that there IS a tool which nationwide can use, and have used, to increase its capital.

In reality how appealing that debt will be if or when nationwide is facing the abyss. month on month defaults and increasing capital requirements will go hand in hand. In the end they will probably face a significant renegotiation of a large chunk of debt that simply wont be appealing to the market and will fail.

Can you repost with the hyperlink working? 

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38 minutes ago, Ah-so said:

Can you repost with the hyperlink working? 

Done by honkeydonkey already. Apologies that was the ft 'sharing' link to sned via whatsapp so i assumed that might work better than the bog standard ft link which is behind a paywall.

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6 minutes ago, regprentice said:

Done by honkeydonkey already. Apologies that was the ft 'sharing' link to sned via whatsapp so i assumed that might work better than the bog standard ft link which is behind a paywall.

Thanks. Read the article. I remember the issue from the first time round when pibs were going to lose there capital value under Basel 3.

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1 hour ago, Ah-so said:

Thanks. Read the article. I remember the issue from the first time round when pibs were going to lose there capital value under Basel 3.

The article said the bank will be paying 15% on the shares issued. How can they be doing this at a profit?

It all sounds very shady.

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14 minutes ago, doomed said:

The article said the bank will be paying 15% on the shares issued. How can they be doing this at a profit?

It all sounds very shady.

Leverage my dear Watson, leverage.

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17 hours ago, One-percent said:

I received a letter today saying that the interest rate on the 5k I have invested in an isa is reducing from 1 percent to .75. Thank you nationwide, on the side of its members. I'm now anticipating the letter which tells me the rate is going negative. 

I was lucky to get in on a fixed rate just before Carney lowered IR to 0.25%. Do you feel safe if Nationwide go bust with the FCSA scheme?

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1 hour ago, GARCH said:

Leverage my dear Watson, leverage.

To me it sounds more like they are paying the mortgage using the credit card. Issuing those shares must be a net loss to the bank.

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2 hours ago, doomed said:

The article said the bank will be paying 15% on the shares issued. How can they be doing this at a profit?

It all sounds very shady.

The 'cost of equity' is usually deemed to be somewhere between 10% - 15% so it is probably priced about right. It sounds a bit on the high side, if it is paying a regular income, but this capital is there to absorb losses and keep the firm solvent. 

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3 hours ago, Arpeggio said:

I was lucky to get in on a fixed rate just before Carney lowered IR to 0.25%. Do you feel safe if Nationwide go bust with the FCSA scheme?

No, not in the slightest. I make sure I have less than 75k in there. The problem is I distrust them all equally.  I have been toying with the idea of gold and have been reading up on here on and off about it.  The trouble with gold however, is that I wouldn't trust paper gold and would want physical. Then there are problems with this and where to store it.  Will it be stolen in an opportunist break in?

i'm waiting for interests rates to go negative and am sure they will. The boe have run out of road regarding their 'emergency ' interest rates and it is the only place left for them to go.

oh bu&&her it, I think I'll just buy a btl.  Can't go wrong with bricks and mortar, they ain't making any new land and all that. :ph34r:  :lol: 

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3 hours ago, doomed said:

To me it sounds more like they are paying the mortgage using the credit card. Issuing those shares must be a net loss to the bank.

That is not a helpful way of looking at the matter.

The money lent out by the banks (setting aside the matter of money creation by the banking sector as a whole)  was obtained from somebody else, either through debt (deposits, bonds issued) or equity (shares, these Frankenstein's monster CCDS).

When the bank makes losses on loans it can't pass those losses on to people who invested with debt - that's not how banking works. Hence the losses are borne by the equity investors. If the banks are leveraged (most of the money they lend was borrowed rather than invested) then a small percentage loss on their loan book corresponds to a large percentage loss for the equity.

If a bank has made £100 of loans financed with £90 of debt and £10 of equity, then if some loans sour and they have to eat £2 of losses, that's a 2% loss on the loan book leveraged into a 20% loss to the equity investors by the balance sheet leverage.

All laid out beautifully here.

Because of the risks that they are taking, the equity investors' rewards bear no simple relationship to the interest rate that the bank charges to its borrowers. The whole point is that the equity investors are not lending their money to the bank, they are investing their money in the bank. If they want their money back they need to go into the stock market and find somebody willing to buy their shares. Bank shareholders didn't really benefit from the 2008 bailouts. They ate massive losses.

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2 hours ago, One-percent said:

No, not in the slightest. I make sure I have less than 75k in there. The problem is I distrust them all equally.  I have been toying with the idea of gold and have been reading up on here on and off about it.  The trouble with gold however, is that I wouldn't trust paper gold and would want physical. Then there are problems with this and where to store it.  Will it be stolen in an opportunist break in?

i'm waiting for interests rates to go negative and am sure they will. The boe have run out of road regarding their 'emergency ' interest rates and it is the only place left for them to go.

oh bu&&her it, I think I'll just buy a btl.  Can't go wrong with bricks and mortar, they ain't making any new land and all that. :ph34r:  :lol: 

You can have separate accounts at NS&I on which the limits affect probably 2% of the population.Sterling is a worry though.

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2 hours ago, Bland Unsight said:

That is not a helpful way of looking at the matter.

The money lent out by the banks (setting aside the matter of money creation by the banking sector as a whole)  was obtained from somebody else, either through debt (deposits, bonds issued) or equity (shares, these Frankenstein's monster CCDS).

When the bank makes losses on loans it can't pass those losses on to people who invested with debt - that's not how banking works. Hence the losses are borne by the equity investors. If the banks are leveraged (most of the money they lend was borrowed rather than invested) then a small percentage loss on their loan book corresponds to a large percentage loss for the equity.

If a bank has made £100 of loans financed with £90 of debt and £10 of equity, then if some loans sour and they have to eat £2 of losses, that's a 2% loss on the loan book leveraged into a 20% loss to the equity investors by the balance sheet leverage.

All laid out beautifully here.

Because of the risks that they are taking, the equity investors' rewards bear no simple relationship to the interest rate that the bank charges to its borrowers. The whole point is that the equity investors are not lending their money to the bank, they are investing their money in the bank. If they want their money back they need to go into the stock market and find somebody willing to buy their shares. Bank shareholders didn't really benefit from the 2008 bailouts. They ate massive losses.

I know you know Bland but it's worth pointing the equity investors in RBS and Northern Crock lost more than 20%.

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