Tag Archives: financial
Bank of England closely monitoring UK buy to let lending
The Bank of England has confirmed that it is closely monitoring the buy to let sector in the UK following changes announced in the sector in the autumn statement. Its latest Financial Stability Report says that the buy to let sector continues to drive growth in the UK mortgage market and the Bank of England believes it is more interest rate sensitive than the owner occupied sector and warns that strong growth may have implications for financial stability. It means that more buy to let lending controls may therefore be on the cards. That would be another blow to the sector. Landlord wishing to enter the sector and those looking to expand their portfolios already face paying an extra 3% in stamp duty from next April and there have also been changes to tax on earnings. The Financial Stability Report says that since 2010, credit loss rates incurred on buy to let loans in the UK have been around twice those incurred on lending to owner occupiers. It points out that the buy to let sector continues to drive growth in the mortgage market and while greater competition in this sector has not to date led to a widespread deterioration in underwriting standards of UK banks, strong growth in buy to let lending may have implications for financial stability. ‘The FPC remains alert to financial stability risks arising from rapid growth in buy to let mortgage lending and notes the difference in underwriting standards in the owner occupier and buy to let mortgage markets, in particular in the typical interest rates used in affordability stress tests,’ it says. ‘New loans to buy to let investors are often subject to less stringent affordability tests than loans to owner occupiers. According to industry standards, the affordability of a buy to let loan is typically tested by ensuring that the rental income exceeds 125% of loan interest payments at a mortgage interest rate of 5% to 6%. In contrast, and in accordance with the FPC’s June 2014 Recommendation, the affordability of loans to owner occupiers is tested by ensuring that the borrower has sufficient income to cover their mortgage payments at a more stringent mortgage interest rate of around 7%, despite owner occupier mortgage rates tending to be around 0.7% lower,’ the report continues. ‘Assessed against these affordability metrics, buy to let borrowers may be more vulnerable than owner occupiers to an unexpected rise in interest rates or a fall in income. For example, if mortgage rates rose by 300 basis points, the increment by which the FPC recommended the affordability of mortgages to owner occupiers is tested, nearly 60% of buy to let borrowers who took out loans recently would see their rental income no longer covering 125% of their interest payments. By comparison, only 4% of recent owner occupier borrowers would see their mortgage debt costs rise to above 40% of income, a level above which households… Continue reading
UK govt announces details of £7 billion house building priority programme
The UK government has announced a £7 billion programme to make house building a priority which includes more than 400,000 affordable homes. Chancellor George Osborne called it the biggest affordable housing programme since the 1970s when he made the announcement as part of his Autumn financial statement. It will include £2.3 billion paid directly to developers to build 200,000 starter homes aimed at first time buyers. They will be offered at a 20% discount on prices up to £450,000 in London and £250,000 across the rest of the country. He also announced £200 million for 10,000 new homes that tenants can live in for five years at reduced rents while they save for a deposit. They will then have the first right to buy the home. Then there will be £400 million to help build 8,000 specialist homes for older people or those with disabilities, the Chancellor also confirmed. But not all of this is new. The starter homes package has already been flagged up and it is well known that the government wants to build millions of home in the next five years. Nevertheless the programme has been widely welcomed, although concerns have been expressed about the focus on home for sale, although the new homes that tenants can buy after five years will also be welcomed. Among those concerned about the lack of help for the rented sector is Adam Challis, head of residential Research at JLL. ‘The Chancellor's support for 400,000 new affordable homes is welcomed at a time when there is a dire need to expand housing construction right across the country,’ he said. ‘This Government's narrow focus on home ownership is a serious concern however. Support for the private rented sector and social housing is vital to protect the financial stability of millions of households, for whom ownership is beyond reach,’ he pointed out. ‘The private rented sector is the fastest growing tenure in the UK and deserves direct support through the planning system and through the release of public land. Social housing investment provides vital security to more vulnerable households, while also reducing the heavy current reliance on temporary accommodation,’ he explained. ‘Housing delivery desperately needs long term planning rather than short term interventions. They are disruptive to construction programmes and ultimately weaken the system of delivery. Housing should be viewed as infrastructure that protects household stability and supports economic growth,’ he added. Developers will welcome the announcement by the Government of funding for new housing including starter and shared ownership homes, according to Claire Fallows, partner at Charles Russell Speechlys. ‘Questions remain, however, as to whether local authorities will continue to insist on the provision of social and affordable rented units on larger housing sites and, if so, whether Housing Associations will have the funding available to acquire those units. Flexibility by authorities will be required to ensure that housing delivery is not stalled,’ she said. Continue reading
High loan to value lending declining in overall UK mortgage market
The UK government’s Help to Buy scheme is boosting lending to first time buyers but high loan to value lending activity has fallen year on year, new data shows. Overall 95% LTV mortgage almost doubled under Help to Buy in the first 18 months of the scheme from January 2014 to June 2015 making up £3.43 of every £100 worth of mortgage lending, according to research from private mortgage insurer Genworth. This was up from £1.77 in the previous 18 months as more options have appeared for home owners with smaller deposits. However first time buyer and 95% LTV lending activity fell year on year in the second quarter of the year, marking the second quarterly decline in a row, the first time this has happened since 2010/2011 Total mortgage lending across the whole market grew by £48.2 billion which means that as the mortgage market has grown during this period, £12.24 of every extra £100 lent has been via 95% LTV mortgages. Genworth’s analysis shows that first time buyers account for almost £21 in every £100 lent during the first half of the Help to Buy 2 (HTB2) scheme compared with £19.33 in the previous 18 months. This compares with just £11.41 per £100 in 2007/2008 and highlights how the scheme has played an important role in encouraging first time buyer lending. The growth in 95% LTV is an encouraging sign for a sector that was hit hard by tightening credit conditions during the recession, exacerbating the challenges of raising a big enough deposit to buy a home. But the report suggests that concerns linger for long term health of the 95% LTV market. Both 95% LTV lending and first time buyer lending declined by value year on year during the second quarter of 2015 for a second successive quarter. This is the first time this has happened for two consecutive quarters since the lending drought from the fourth quarter of 2010 to the third quarter of 2011. It contrasts with the substantial growth achieved when Help to Buy was first introduced, and raises doubts about how well activity will fare when it is withdrawn at the end of 2016, particularly with expectations that historically low interest rates will finally start to rise next year, raising costs for borrowers. ‘There is no denying that Help to Buy has played an important part in revitalising the first time buyer and high LTV mortgage market following a significant lending drought. Some participating lenders are now moving towards launching non-HTB2 products, but it remains to be seen whether this will be enough to sustain the benefits of the scheme once it expires,’ said Simon Crone, vice president for mortgage insurance Europe at Genworth. ‘We are potentially facing a situation where the high LTV market could easily fall back into decline with the end of Help to Buy now just over a year away. Even… Continue reading
