Friday, March 25, 2016

Hubble bubble toil and TROUBLE ?

Bank Of England Set For New Buy-To-Let Powers

 "highly likely" the FPC would be given the powers over the buy-to-let mortgage market "later this year". The number of mortgage approvals in February was also 26% higher than a year ago. The BBA's chief economist Richard Woolhouse said: "It appears that borrowers are continuing to try to get ahead of the increases in stamp duty for buy-to-let and second home buyers scheduled to come into effect next month." Saw this first on the forum... so shout out to those boys. One for Jack methinks.

Posted by techieman @ 09:34 AM (7349 views)
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11 thoughts on “Hubble bubble toil and TROUBLE ?

  • Happy easter to bulls and bears alike.

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  • It would appear that BTL mortgage’s will inevitably become regulated alongside residential mortgages. Most authorised firms now process BTL mortgages in the same way as a residential mortgage and changes to PI insurance requirements also point to full regulation being imminent.

    It is also noticeable that lenders are already making changes to their BTL criteria ie increasing the 125% rental cover (this follows the recent stamp duty changes).

    Brokers are also facing extra work in having to provide 2 lots of quotes ie a standard quote and a quote for a limited company wrapper or shell.

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  • Hot off the press…………………………

    The PRA wants to strengthen buy-to-let underwriting standards by insisting on a minimum level of stress testing to ensure loans remain affordable when rates rise.

    A consultation paper on the future of buy-to-let underwriting says that the market is defined by short-term interest-only mortgages that leave consumers vulnerable to hikes in base rate.

    The paper suggests lenders should consider future interest rate rises for at least the first five years of any buy-to-let mortgage.

    The exception would be unless the interest rate is fixed for more than five years, or if the overall mortgage contract is less than five years.

    The PRA suggests lenders should pay attention to:

    Market expectations
    A minimum increase of 2 per cent in buy-to-let mortgage interest rates
    Any Financial Policy Committee announcements around appropriate interest rate stress tests for buy-to-let
    The PRA paper adds that lenders should assume a minimum borrower interest rate of 5.5 per cent.

    The paper says: “The proposals on affordability testing aim to improve the safety and soundness of PRA regulated firms by ensuring that they take full account of any potential interest rate rises in their buy-to-let underwriting assessment.

    “This will help curtail inappropriately risky and imprudent lending – loans that are affordable under the current low interest rates environment but will quickly become unaffordable if and when interest rates rise – and lower potential credit losses and repossession costs.

    “As a result, these proposals are also expected to help insulate the lenders, the financial sector and wider economy from the impact of negative shocks in the housing market.”

    The PRA is also proposing that all firms use an affordability test when assessing buy-to-let applications, either in the form of an interest coverage ratio test or an income affordability test that takes into account a borrowers’ personal income.

    It is seeking to establish a standard set of variables that should be used within either form of affordability test, meaning lenders give consideration to:

    All costs associated with renting out the property where the landlord is responsible for payments
    any tax liability associated with the property; and
    where personal income is being used to support the rent, the borrower’s income tax, national insurance payments, credit commitments, committed expenditure, essential expenditure and living costs
    However, the PRA is clear that it is not proposing supervisory guidance for LTV standards, though it says it expects firms to have “appropriate controls in place to monitor, manage and mitigate the risks of higher LTV lending”.

    The paper also wants to define what a ‘portfolio landlord’ is. It suggests a good definition is someone with at least four mortgaged buy-to-let properties across all lenders.

    The paper adds: “The PRA is expecting that firms conducting lending to portfolio landlords do so according to a specialist underwriting process that accounts for the complex nature of the borrower and their portfolio of properties.”

    The PRA first announced its intentions to review the underwriting standards of buy-to-let lenders in December.

    The changes are the latest move in a string of Government crackdowns on the buy-to-let and wider mortgage market.

    On 17 December 2015 the Treasury published a consultation on the buy-to-let part of the FPC’s request for extra powers, which closed on 11 March.

    The aim of the consultation was to give the FPC powers of direction over the buy-to-let market, like it has over the owner-occupied market.

    The market is still waiting for the outcome of the FPC consultation.

    The Chancellor has also been targeting buy-to-let landlords with tax relief and stamp duty changes.

    In his emergency Budget last July, Osborne announced cuts to tax relief on buy-to-let homes in an attempt to even the odds between would-be landlords and owner-occupiers.

    From 2017, relief for buy-to-let landlords will be gradually cut to 20 per cent from the current maximum of 40 or 45 per cent.

    Then in his 2015 Autumn Statement the Chancellor added a 3 percentage point surcharge onto stamp duty for buy-to-let properties, starting from 1 April 2016.


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  • This also just in “BoE: UK financial stability has deteriorated”

    The FPC said it will also ‘remain alert’ to potential threats to financial stability from rapid growth in buy-to-let mortgage lending.

    The outstanding stock of buy-to-let mortgages has risen by 11.5% in the year to 2015 Q4. The macroprudential risks centre on the possibility that buy-to-let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress.

    However the Committee notes that growth of buy-to-let mortgage lending is likely to slow in Q2 as changes to stamp duty take effect.

    Full article

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  • If there are at least 1.5m landlords, it’s more like a retail market than one for professionals, so rightly should be much more tightly regulated. Preferably the amateur sector should be shrunk down to a small enough size to drown in a bathtub.

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  • Interestingly, why haven’t landlords chimed in saying that they don’t need to worry about interest rate rises because they can just pass them on via higher rents? Not really consistent with their insistence that they plan to do the same with the recent tax changes.

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  • @ mombers – this is where (IMO) the HPC Blog suffers from the absence of Mark Wadsworth who would have been able to produce the numbers showing that landlords wont be able to raise rents to cover the additional costs be they via recent Tax changes or rising IR’s.

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  • What this does, is help sustain the bubble. Keeps it in check, creates a minor correction, but they are powering ahead with help to buy for owner occupiers, so I do not see prices letting up. 2026 to 2028 for the next crash. It will come, but you will miss the entire bull market and then miss the bottom of the next crash.

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  • “The FPC said it will also ‘remain alert'” – Haha, you couldn’t make this shit up!

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  • Khards, that reminds me of a large triangular warning sign inside an office block back in the 80’s which said “Be Alert” and pencilled underneath it read “this company needs lerts”

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  • In August 1988 Nigel Lawson ended the joint MIRAS. This had an immediate and profound effect on the market.
    I suspect that the change to Buy to Let mortgages on the 31st March 2016 will play a significant role in the way the market acts in the future

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