FSA reveals extent of buy-to-let arrears
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Figures from the Financial Services Authority have revealed that the level of arrears on high LTV buy-to-let deals is more than three times that of arrears on high LTV prime mortgages.
The regulator has published its Financial Risk Outlook report today which outlines the risks and issues the financial services sector is currently facing.
The analysis includes a breakdown of arrears rates based on data from the 10 biggest mortgage lenders grouped according to the type of mortgage and the LTV as at origination in 2008.
The FSA found that the default rate for buy-to-let mortgages with LTVs between 90% and 95% is 8.13%, compared to the 2.56% default rate for prime loans and the 8.56% rate recorded for credit-impaired loans.
For buy-to-let mortgages with an LTV between 95% and 100%, the default rate falls to 6.3%, against 2.5% for prime deals and 8.97% for credit-impaired mortgages.
The FSA says: “During the recession, the number of highly-indebted borrowers unable to maintain high debt-servicing costs has increased, due to their over-reliance on credit to service their debts.
“Specialist lenders that extended mortgage credit to those who had previously not had access to the mortgage market, and those who purchased mortgage books from these lenders, have to date been most affected by rising arrears and repossessions.”
The report also highlights the effect that the financial crisis has had on mortgage brokers, noting that brokers have been particularly hard hit by falling sales.
It cites research which says that over three quarters of brokers say current economic conditions are having a negative impact on their cash flow.
Over 60% also report that they are experiencing a negative impact on the level of capital reserves they hold.
And the FSA’s report warns: “Some intermediaries could have increased incentives either to leave the industry or to try raising revenue by increasing sales of other products.
“The movement of intermediaries into product areas where they have little or no experience could potentially give rise to conduct risks.”
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Readers' comments (21)
Tony Joannou | 10 Mar 2010 3:14 pm
Great, thanks for telling me that and for probably spending a considerable amount of money doing so.
Does someone want to pay me so that six months later I can conclusivly report that the sky is blue!
Where do these people live. Of course BTL will have a higher arrears ratio than residential. Its an investment property not a home so its less likely that someone would bust a gut to keep it if things start to go pear shaped. Have they not heard of rent arrears? The recession hits people renting too so if tenants can't pay, its likely the landlord can't pay as well.
Talk about the bleeding obvious.
They will probably use this as the reason to regulate BTL despite everyone agreeing it would be a bad move. Just you watch and see.
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Evan Owen | 10 Mar 2010 3:20 pm
Buy to let is a commercial loan, how does the arrears rate of those compare?
I wish I knew what evidence there is to support the last two paragraphs...
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Anonymous | 10 Mar 2010 3:24 pm
I have never seen any lender offering deals on BTLS over 90% so the FSA figures must be calculated on non standard BTLS only available to the chosen few or with a commercial loan via a Bank offering specialist facilities to their trusted customers.
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Anonymous | 10 Mar 2010 3:32 pm
What a complete load of twaddle!
What are the FSA doing reporting figures on something they don't regulate. Whats it got to do with them. I've just found out that a pint of milk has gone up by 3p so could I have my comments printed please? Furthermore, has the FSA interference broken data protection rules?
Also how many lenders did buy to lets in excess of 90% LTV or are we just working on assumed / presumed / lets just have a guess valuations?
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Anonymous | 10 Mar 2010 3:37 pm
How can a report like this be taken as typical of the BTL sector. 90 - 95% ltv mortgages, this surely was the exception with the majority of loans at 85% or less, why not publish the figures as an average across this sector to get a true view of BTL.
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Richard P | 10 Mar 2010 4:16 pm
Surely these comparisons will apply at some level to the split of repossessions between Residential and BTL and so the media view of actual residential repossession is distorted. Is the housing market really in as bad a state for homeowners as portrayed in the media ! I have always said the BTL repos must be distorting the figures. I may be wrong but worth considering. Also agree with the 95% BTL statement, highest I ever came across was Edeus at 90%, where are they now...! another worthless report stating the obvious, I may write to the FSA on Friday to advise everyone the day before was in fact Thursday !!
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Anonymous | 10 Mar 2010 4:37 pm
quote "The report also highlights the effect that the financial crisis has had on mortgage brokers, noting that brokers have been particularly hard hit by falling sales.
It cites research which says that over three quarters of brokers say current economic conditions are having a negative impact on their cash flow."
really Sherlock?? and they paid someone to come up with this?
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Anonymous | 10 Mar 2010 4:39 pm
Oh I loved reading these comments! After a day sat here wondering why I bother up pops another load of garbage from the FSA! Like many comments above, I have never seen a BTL at 95% or 100% where do they get their information from, it beggers belief and these people regulate us? They tell us how to run our business and then can't get the facts right themselves.
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Grey haired Underwriter | 10 Mar 2010 4:52 pm
Looks as though the FSA is working off of some of their ridiculous stress testing figures which have allowed for property price reductions. They have indexed property and are publishing this review based on the assumed LTVs as they stand today. To be honest this is all besides the point. High LTV BTL was always going to be a problem especially as the only way lenders could make these deals self financing was to lend the money at pay rate x 100%(NR comes to mind). The loans were already marginal when they completed and there was no scope for a landlord to develop a buffer for loss of tenants or rent - in fact the majority had to subsidise the BTL to cover management and other fees. Just goes to show the stupidity of lending for volume and not for profit. More chickens coming home to roost.
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Anonymous | 10 Mar 2010 5:07 pm
I am guessing that these high LTV loans are the current indexed valuation of the back book, but then opening paragraph doesn't seem to support this.
May be it's high LTV residential mortgages that have been converted to BTL?
May be the "sample size" is really small, ten's or a couple of hundred mortgages. Who knows?
As usual, the FSA publish figures that the rest of the industry really have no idea at all how they arrived at!
Just as they miscalculated the percentages in the MMR, perhaps they have miscalulated again.
Do the FSA really have anything useful to say anymore?
With regards to the last two paragraphs; the biggest incentive to leave the industry is the FSA. Perhaps we can all join their ranks for a little bit of the gravy.
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