9 Mar 2013

The Bank of England funding for landlords scheme?

In 2012, gross mortgage lending increased by just £2bn on 2011, to £143bn. In the same year buy-to-let surged on a gross basis by more than that, £2.6bn: from £13.8bn to £16.4bn. These are figures from the Council of Mortgage Lenders.

All of the increase in gross mortgage lending in 2012 can be accounted for by an increase in lending to landlords, not homeowners.

This is a rather stark and shocking figure.

First thing: is this a problem? It might be.

It could be at least partially being driven by the taxpayer-backed subsidies of the Bank of England Funding for Lending scheme.

In the second half of 2012, the proportion of buy-to-let advances accelerated a little, but that’s not proof.

A look at the announcements from RBS and Lloyds showed that they were decreasing interest rates and increasing landlord mortgage funding on the back of the BoE scheme.

Given that buy-to-let is good for the already wealthy, and perhaps less good for young people some in Britain might not see it as an appropriate direction of subsidised funds.

Surely there should be a debate? (worth noting in Canada, Mark Carney took measures to take the sting out of landlord credit, rather than add to it).

I fear no politicians understand or care about these matters.

Indeed I have written before about how buy to let is a quasi-nationalised industry.

Second: it’s been pointed out that looking at net figures might be more sensible.

It might tell a different picture but I can’t get any net figures for buy-to-let.

So let’s see. Much of the downward drag on individual lending came from a drop in remortgaging. True enough.

But even taking all of that into account, here is another stark fact:

The increase in gross lending for buy-to-let in 2012 of £2.6bn, exceeded the increase for “home movers” of £1.9bn (up from £51.7bn to £53.6bn).

It is worth noting that  the rate of increase for “home movers” was 3.7 per cent versus 19 per cent for buy-to-let.

Third, and similarly, it has been pointed out that the gross mortgages advanced to first time buyers were up £3.5bn in 2012.

So it could be said that first time buyers account for all the increase in gross mortgage lending. Fair enough, but that should just represent normality rather than be a “shock”.

I would argue that comparing gross loans to landlords (up) with total gross loans to individuals including remortgages (down) is an interesting, (though not the only) point of comparison.

I’m not sure that a comparison of first-time buyer vs home mover + buy to let + remortgages tells you much. In any event, buy-to-let is up 19 per cent versus 15 per cent for first-time buyer.

All-in-all “strip out buy-to-let mortgages and there was no increase in gross mortgage lending to individuals” in 2012 is a fact.

On the net figures I can find, buy-to-let grew the fastest of all lending subgroups. Banks increased lending to BTL more than they increased to home movers in 2012.

Big picture: mortgage lending still sluggish. Landlord lending doing the best.

This is partly a result of government and central bank intervention and is likely to become more so. Yet no discussion of it in public policy at all.

13 reader comments

  1. StuartM says:

    Well they have printed all this money and the bulk of it (QE and Funding For Lending) has just been used by the banks as a cheap source of funds for their own coffers – it’s got to go somewhere.

    Having destroyed the savings market through their ineffective schemes, they are now on the verge of doing the same again. Definition of stupidity: doing the same thing over and over again and expecting different results.

    They (Gov/BoE) keep telling us debt is too high – and then they ensure that saving is just watching your money lose value (through failing to address inflation and creating these daft schemes). Yet savers are the “responsible” element of society in that they prepare for an uncertain future (something we are meant to be being encouraged to do). Anybody saving these days needs their heads examined professionally.

  2. Katy says:

    PricedOut campaigns on this issue and has done for many years. Like you, we cannot understand why this issue does not get more attention. Also politicians talk of BTL as adding to ‘supply’ (for Generation Rent) and recently have talked of giving subsidies to BTL landlords to incentivise them to house social tenants. Yet BTL does not contribute to supply, it just contributes to demand. Many people in our campaign have found themselves up against BTL landlords when looking to buy their first home and get the Gvt continues to support this sector..

  3. Edward Harkins says:

    This scandal – for that is what it is – reflects UK politicians’ and policy-makers’ obsessing with home ownership and private landlordism. It starkly underlines the question of why should the government be intervening to support the owner-occupation or BTL systems at all? (They are systems, and not markets). This taxpayer-funded largess for BTL speculators is matched by the equally irrational policy of grant aiding low to moderate income households into the owner-occupied sector.

    Westminster and regional Governments’ taxpayer-funded grants for home ownership are examples of a dysfunctional aspect of UK housing policy. To provide grant inducements for low to moderate income households to enter the owner occupation market, when they don’t even have the resources to provide the initial deposit. is not only bad economics – it is also morally dubious.

    If a household cannot even sustain, unaided, the initial requirements of obtaining a mortgage, the last form of tenure they should be in is owner-occupation. This is especially so where the household is a low to moderate income earning one (the type that are most likely to be eligible for such grant assistance). They are…

  4. Muggwhump says:

    If you have a house price bubble, and we do, neither the banks nor the government are going to start giving out mortgages to ordinary buyers when we still have falling incomes being shrunk further by inflation.
    Until living standards start rising the mortgage funding will be directed towards the safer end of the risk spectrum ie existing buy-to-let landlords with equity they can tap.
    The housing market is no longer a ‘free fair market’ it hasn’t been since ’08 and won’t ever be again. That is the truth of it!
    When you think that we all need to live somewhere yet most of us would require rents/prices to drop significantly in order to do so, while at the same time we collectively subsidise home ownership for the few via Firstbuy Direct, Newbuy Direct, part rent/part buy and shared equity schemes, you have to ask…Where is the comprehensive debate on housing most of us are crying out for?
    It isn’t just about home ownership either, millions who underwrite prices will never themselves be able to afford to buy the homes their taxes subsidise for others. Again where is the honest debate about this?

    1. Andrew Dundas says:

      I heartily agree with you Mugwhump. And add that B2L loans are not a lower risk than loans to home buyers. Many people who let properties are more likely to default than owner-occuoiers. The latter don’t want to lose their ‘home’.
      What B2L loans do is provide a much higher interest rate for banks. Which may be why the divert extra cash to B2L loans.
      Moreover, Prof Muelbauer’s expert & comparative analysis of UK house values vs our neighbours’ values suggests that the cause of any housing bubble is UK planning law that distorts and restricts supply. His finding has been independently supported by Kate Barker (at the time a member of MPC). Both suggest that the ‘price’ of mortgage loans is a lesser influence on house prices than the severe restrictions on supply with other countries.
      All of which supports your point.

  5. Philip Edwards says:

    Faisal,

    “Quasi nationalisation”?………..Oh come now. This is intensified privatisation by a capitalist state.

    Private landlordism developed over 200 years of capitalism and led directly to the Rachman era (for which, see the 60s TV play “Cathy Come Home”) and a variety of housing legislation. That is how the social Housing Association movement really took off in the 70s. During that shift many profiteering rentier portfolios were sold off. Private landlordism was and is one of the primary causes of inner city decay.

    Of course it raises the fundamental point of “ownership.” Fact is, the vast majority of people who THINK they own their home are renting from the mortgage lenders until the lenders have wrung every last penny of profit from it. Then, if they want to move inflation means the buyers pay a higher price for the same kind of property. This assumes they don’t have to sell during a period of “negative equity,” in which case they are in debt – it has all been for nothing.

    So much for “home security” – capitalism steals it, as it does with everything else. Hence the return and rise of leasehold properties. All of it just another con trick, and guess…

  6. Philip Edwards says:

    ….who the suckers are who are taken for a ride?

  7. Robert Sully says:

    Faisal,
    I am a pensioner who relies on interest on savings for income. Since the introduction of the Funding for Lending Scheme my income has plummeted as the banks no longer need to attract deposits. If, as you say, banks are choosing to lend to Buy to Let landlords this is an absolute disgrace. Why should hard-up pensioners subsidise landlords? Only George Osborne could dream up a scheme like this.
    Regards,
    Robert

  8. Will Speak says:

    I wonder how many of those BTL loans were for shabby one bedroom flats to meet the demand from the thousands of people who are being forced out of thier homes by the bedroom tax?

    1. Andrew Dundas says:

      Rent income and saleability of two bedroom flats is higher than for one bedroom flats. Most new blocks are of 2+ bedrooms.

      Moreover, minimum standards for social housing are that 2 bedrooms is preferred since those provide for guest occupations. Consequently, social housing associations outwith London have been converting blocks so that 2 bedrooms flats can be made available.

      Oh dear!

  9. FR says:

    Let’s guess what proportion of local and national politicians of any particular leanings are personally invested up in buy-to-let ? I wouldn’t be surprised if more than half of them had made a pretty profit from the housing boom and are raking in rents too. No surprise they do all they can to keep homes overpriced and will carry on as long as they can get away with it. Sack them – Belgium has done OK without a government for two years. We could too..

  10. Dr C.G says:

    Although there is no national debate I think many people are concerned about this issue and keen to explore solutions. Personally I am interested in the idea of a form of land tax and how that might address some of the issues. How about an in depth look at possible solutions Faisal ?

    1. Andrew Dundas says:

      You’re correct. But your excellent thoughts have some dismal precedents:
      1960s Planning Reform was twinned with a development land tax. It was designed to ensure that those who gain from owning land re-designated from ‘farmland’ to ‘housing’ or other development criteria would pay a tax on that ‘development gain’ when they sold it on.
      Unfortunately, the Landowners’ Party (aka the Tory Party) pledged to repeal that tax just as soon as they got into power. That solemn promise brought sales of development land to a halt and invigorated landowners to campaign for a Tory Government.
      Current provision allows Councils to levy developers (not site owners) to provide either space or funds towards social housing builds, but that doesn’t usually extend to small sites, which sales are usually at extortionate prices. Some councils are more generous than others.
      So. Like sensible provision for paying for end-of-life provision, development taxes are v good policy that usually fall foul to party politicking! Don’t be deterred.

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