Regulation of the buy-to-let sector

Mortgage lending exceeds reasonable limit of GDP

Calls on the Government to reintroduce MIRAS

King admits banks aren’t lending

Upad disagrees that London rental prices have seen 15% decreases

Regulation of the buy-to-let sector

The Turner Review said that the Financial Services Authority (FSA) is considering regulating the buy-to-let market as well as second charge mortgages.

The review said the FSA’s paper later this year reviewing mortgage conduct of business rules will look at whether or not extension of its regulatory scope to these sectors is necessary.

The Turner Review said: “The paper will consider whether more effective regulation of the mortgage market, through tighter conduct rules or direct product regulation, would require the extension of the FSA’s remit to cover second charge mortgages and buy-to-let mortgages.”

Mortgage lending exceeds reasonable limit of GDP

According to the annual world retail banking report from Cap Gemini, Unicredit and EFMA, mortgage lending has “exceeded reasonable limits” with the volume of debt running at 86% of gross domestic product (GDP), or about £1,200bn.

The report recommended 60% as a sustainable upper level. Mortgage growth shrunk by -26.6% in the UK between the first half of 2007 and the same period in 2008.

The US is even worse off with the value of mortgage debt at 104% of GDP. The report said the “main explanation lies in the uncontrolled increase in housing prices”.

Despite the rise, mortgages remain a “loss leader” for banks in many countries – including the UK – as competition caused net interest margins globally to shrink from 1.33pc to 0.8pc between 2003 and 2007. Although margins are recovering, funding costs, greater default risks and tight regulation will restrict profitability in the years ahead.

First time buyers and borrowers with poor credit profiles could be casualties of a reform of mortgage practices.

The report adds that banks will have to ‘develop cross-selling capabilities over the next five years to make mortgage lending profitable. Only a few do what is needed to succeed today. Mortgage specialists’ ability to survive on their own is questionable.’

Calls on the Government to reintroduce MIRAS

International property advisory and tax consultants Mazars is calling for the Government to reintroduce Mortgage Interest Relief at Source (MIRAS) and abolish stamp duty on properties worth under £1mn to give the UK property market a badly needed boost.

Ahead of the budget on 22nd April, Stacy Eden, Mazars’ partner and head of property, said tools like MIRAS and the abolition of stamp duty should be re-enacted for two years to give struggling mortgage payers a tax rebate and re-invigorate the stalling economy.

In February, the Council of Mortgage Lending’s (CML) figures showed gross UK residential mortgage lending fell to £9.9bn, a -60% drop on the previous year and down -15% since January.

Eden said: “If the same Government that withdrew MIRAS, rejecting it as little more than a middle-class perk in 2000, reintroduced it in 2009, Prime Minister Gordon Brown would be helping far more than just the middle-classes this time.”

King admits banks aren’t lending

Mervyn King, governor of the Bank of England (BoE), has acknowledged that banks are refusing to boost lending even after being showered with over £700bn of public money.

He said loans figures to date “have not been encouraging” despite unprecedented government efforts to restore flows of credit. King admitted that he “totally” shared the public’s frustration with the lending giants, which are starving customers of credit and exacerbating the downturn. 

Still, King cautioned there could be improvement in coming weeks after Royal Bank of Scotland and Lloyds Banking Group signed up to new lending agreements.

Upad disagrees that London rental prices have seen 15% decreases

James Davis, founder of online property rental site www.upad.co.uk, disagrees with reports that London property rental prices have decreased by -15% over the last year.

Davis said: “Over recent months, the city has seen a vast increase in the number of accidental landlords, due to the fact that they have been unable to sell their property. And the rules of supply and demand apply, meaning that property rental prices have levelled off. Overall I do not believe they are falling – there remains plenty of potential for many to make long-term gains.

“What this new breed of landlord needs to remember is that, today, tenants in London are looking for one- and two-bedroom properties, primarily in zones two and three. It is these types of property that are still commanding healthy rents.”

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