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.