The Basel Committee - an international forum which sets standards for bank regulations in individual countries - says financial institutions should place greater emphasis on buy to let borrowers’ ability to repay mortgages.
The Swiss-based committee this week published new proposals increasing the amounts of capital which banks are advised to keep to cover potential buy to let bad debts.
The committee has changed its advice on capital to banks, based on revised definitions on different types of loans for property purchase. Banks’ exposure to buy to let mortgages would have a higher risk weighting, meaning more capital would be needed to cover them.
This is the latest of a series of warnings given in recent days which suggest more mortgage restrictions are on the way for buy to let borrowers.
Media interviews given by a deputy governor of the Bank of England, Jon Cunliffe, included a statement to the BBC that “buy to let has grown faster than any other part of the housing market" and "when you find one sector of the property market growing fast...then I think you have to ask questions about are there risks here, and you have to monitor those risks and if necessary you have to take action to curtail those risks."
The BoE’s recent Financial Stability Report stated that the authorities would not look favourably on any relaxation of buy to let lending criteria being offered by mortgage companies, such as reducing the size of deposits or income requirements.
"The committee remains alert to the rapid growth of the UK buy to let market, and potential developments in underwriting standards as the sector could pose a risk to broader financial stability," the Bank of England said in its report.
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In a virtually zero interest rate environment, an environment never seen before in history and one likely to continue for the foreseeable future, where is this great risk? I see something else emerging hazily from the mist. I see a Government committed to a strong PRS because of the mobility and flexibility it brings but I also see a Government committed to regulating the PRS in order to provide a decent standard for tenants. This Government has decided it's much easier to regulate a few thousand corporate Landlords than a few million private ones. Ultimately this position will significantly change the game and agents who want to survive will have to form a new strategy because the last 20 years in the PRS are about to become 'the good old days'
Fair comment. Business models may well need to change. Government, however, does tend to make rather a hash of things. The law of unintended consequences usually comes along and bites them at some point. I suspect the recent and ongoing changes to the PRS will be no exception.
The onslaught on the average BTL landlord seems unremitting at present, however, without strong evidence that corporate investors are ready and waiting to take up (all of) the slack should the former leave. I’m also not convinced that corporate investors are going to necessarily invest in the right mix of properties that tenants want.
The other issue on the governments’ agenda, of course, is to move into the centre ground as Labour literally “exit stage left”. They clearly assume that most landlords would vote Tory regardless (as any alternative would be even more unpalatable). Hence, appearing to be more tenant (and less landlord) friendly will probably gain them more votes overall. That’s politics ……
And one other thing, because of zero inflation we are now in a situation where any positive interest rate paid to a saver gives a real return. In the days of high inflation, interest rates were higher but inflation was higher still, meaning savers we're seeing the real value of their capital go down not up and for anyone taking income it was even worse. Yes the nominal value of their money may have stayed the same but in real terms their capital was being destroyed by inflation. So right now we have an unprecedented interest arbitrage opportunity between borrowing at 2% and buying property that yields 6%. It occurs to me that institutions want this opportunity for themselves, they don't want to share it with individuals who, if allowed will force prices up and yields will come down
There are many aspects of concern,especially,mainly well intended Government actions can have adverse results.
Selling Council houses reduced stock,at same time local authority building has plummeted from over 100,000 to less than 10,000.
Housing Associations buy discounted "affordable" homes to rent,but tenants will be able to buy at discount in future,reducing available stock,the owner occupiers and private landlords having indirectly subsidised them,as the builders base their viability on costs of social housing.
The continued landlord bashing,and increasing costs will reduce the properties going to those who now provide for people who choose to rent.
A landlord with income coming from a number of properties is more likely to be able to cover the mortgages,when one tenant loses their job,so I cannot see why put restraint on bank lending,against their interests.
An owner losing job,or self employed taking ill,suffering bad debts is vulnerable.
There was mortgage protection and indemnity insurance,but borrowers lose their homes when unable to pay mortgage.
The banks some time ago were told to put pressure on small builders who had land,to speed up supply,again hitting small entrepreneur.
There are numerous examples of large companies,serving areas essential to the economy like electricity,gas,water or food like Nestle being taken over by companies that avoid paying tax here,yet have Government support.Costs of electricity etc have soared again also through Government levying on climate change,which is paid by public through increased charges and given to a minority.The Government virtually state their intentions to oust small landlords in favour of corporates.
Targetting a group of small suppliers by licencing costs,stamp duty increases,taxation changes on interest treatment,as well as capital gains instantly taxed indicates Government agenda.
On letting side ,making it harder to remove bad tenants protects the bad tenants against the good landlords and tenants who will not trash properties.Talk of rent controls is unsettling as removing these made renting viable.Small landlords should be encouraged since they filled the gap.There are no longer the Rachman type bad landlords as good tenants have choices.
Reducing supply will increase rents through supply and demand
The writing is on the wall,and many wise people have already got out,interestingly often to investors from Far East,who will continue to earn from tax payers who will pay them rent,but the buyers will pay almost no tax.Local authorities start building to rent again or at least improve existing,instead of Pathfinder schemes clearing the 1950's estates and building to same density with smaller houses,indeed I wonder when figures of new houses built are released why not deduct those cleared to give net figure
Understand Government agenda, sell now if geared,is my advice,and would seem to be the Governments if they were asked,and were honest..Certainly stop buying to let,as currently can liquidate,but when money supply drops and especially if/when interest rates rise,prices will fall.There is a need to control price escalation,I agree as already we are vulnerable to a collapse.
Sadly will anyone take notice!
PS.Look at Commercial Property recent history ,no lending available as called toxic loans,so no investment,or capital to refurbish.Towns and City Centres dying through high council taxes closing businesses.
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