I was interested to read John Charcol senior technical manager Ray Boulger’s blog on Mortgage Strategy Online last week about Bank of England deputy governor Paul Tucker’s comments on negative interest rates.
Boulger pointed out that Tucker has previously raised the topic of negative interest rates and the fact that he has now chosen to go public with this suggestion implies that there is now more consensus at the Monetary Policy Committee than at even three weeks ago at its February meeting that more stimulus of some sort is needed.
And as Boulger says, there seems to be a lack of joined-up thinking vis-a-vis Tuckers ‘negativity’ and the Basel III rules.
He said: “A key aspect of any move to negative interest rates would be to encourage banks to lend more by making it expensive to keep excess liquid assets on deposit at the Bank.
“This is rather ironic as the Basle III rules and pressure from the FSA on lenders to increase their liquid assets has had the exact opposite effect.
“Most tracker rates do not have a collar and so in the event of a bank rate cut most borrowers with a tracker mortgage would receive the full benefit, as would those on an SVR directly linked to Bank rate, i.e. borrowers on the old Nationwide, Cheltenham & Gloucester and Lloyds TSB SVRs.”
Basel III, among other things, asks for more Tier 1 capital, recognising the essentially flaky business model of most Western banks.
Whereas Tuckers suggestion may penalise these same banks for holding onto their wonga (as in their money, not payday loans!).
Which ever way its goes, won’t be long now before the big four decide that that is the end of ‘free’ bank accounts.
Anyway, happy days for your scribe, won’t be long now before Cheltenham & Gloucester paying moi for the privilege of having SVR (directly linked to Bank rate) mortgages with them.
Name and address supplied
I was dismayed by some of the negative comments that greeted the launch of Investec Professional Mortgages last week.
The lender, a subsidiary of Investec, launched with a range of products aimed primarily at company directors and partners of professional practices as well as senior executives, managers or business heads. It only lends through selected intermediaries but plans to widen its distribution in the coming weeks.
But in Mortgage Strategy’s article in last week’s magazine, all the focus was on the rates, with brokers damning the products as uncompetitive – it seems like people are missing the point.
Its unique selling point is underwriting, not rate. It will accept variable income up to 100 per cent of a borrower’s basic income in calculating affordability, which is ideal for those with big bonus payments. The minimum income requirement is £50,000 for qualified professionals and £75,000 for business professionals.
My take on this would be they would lend where mainstream would not so competitive pricing doesn’t really come into it if the client could get the deal elsewhere they would not need a different underwriting criteria in the first place.
This looks like a niche product that mainstream cannot or will not offer and has been priced accordingly.
I could not disagree more with the broker comments included in the story about the launch of Investec Professional Mortgages which criticised its pricing.
Good brokers sell on criteria, not rice. I am over the moon such a reputable lender has come in to support large loans.
An area that is hugely under catered for from £750k + with high street lenders who actually understand the needs of high net worth clients.
I have used Investec on many occasions for high-net-worth clients and it takes a more pragmatic approach and their private bankers have a far better understanding of how such individuals are remunerated.
For some brokers, less than half their cases can attain the lowest cost product as those lenders often have the most stringent criteria.
They also tend to look at the whole picture, so they should be a useful new lender to those brokers working with the HNW demographic.
I agree with all of the comments that were left under Mortgage Strategy’s story on Investec Professional Mortgages. The commentators used in the story seem to have completely missed the fact that this is a niche offering. Investec may widen later, but at the moment it has a specific target market. It is looking at future private bank clients today, and not just flinging more money at the 60 per cent LTV bracket.
The Cynical Broker
The news last week from Paul Thomas on Mortgage Strategy Online that The Mortgage Works, Nationwide’s buy-to-let lending subsidiary, has stopped new lending to landlords who have tenants receiving housing benefits, certainly rocked the buy-to-let boat somewhat.
In the story, LettingFocus.com private rented sector consultant David Lawrenson argued that the move was a reaction to the Government’s new benefits system, Universal Credits, which comes into effect in April.
It will cap benefits at £500 a week for couples and £350 for a single person, including housing benefit, and will mean fewer benefits are paid directly to the landlord.
At present, 39 per cent of housing benefit payments are made direct to landlords, according to the NLA, but the new system will only permit payment direct to landlords in specific circumstances, such as a pattern of arrears.
The politicians believe in something called empowering the tenant, which the reason why they want housing benefit paid directly to the tenant, who then is supposed to hand on the rent to the landlord.
Obviously, TMW foresee that simply is not going to happen in many cases and then the landlord and lender is stuffed.
I know a few housing benefit landlords, they are not stupid people and have mostly exited the housing benefit market some time ago and have moved on to either renting to working professionals or pensioners – because this cohort still gets the pension credit.
Name and address supplied
If TMW’s decision to stop new lending to landlords who have tenants receiving housing benefits is due to the onset of the universal credit, then I believe this is a complete lack of understanding by a lender of the entire transaction.
If a property is suitable security and the applicant is acceptable to the lender, then why would the type of tenant have an impact on the decision to lend?
In addition to the lenders detailed that do accept these types of tenants there are a number of the new challenger banks that will also accept them.
We are talking with a number of recognised lenders at credit level with a view to looking at this market as an opportunity and not a threat.
The argument that Nationwide’s decision to stop providing buy-to-let mortgages to landlords with tenants claiming benefits was a reaction to the Government’s new benefits system, Universal Credits, which comes into effect in April, seems to be a classic example of the law of unintended consequences.
While in certain areas of the UK the local economics allow a move towards the professional tenant, in the majority of cases landlords are largely reliant on housing benefit.
To take away the direct payment route is incredibly short sighted and will have a far reaching impact, not only on landlords but also potentially social impact on the tenants themselves.
There is also the impact on the availability of sufficient properties to let on this basis further exasperated by the bedroom tax.
Maybe we should expect a U-turn on this policy when it all goes wrong. It wouldn’t be the first by the current government.
Tim Leonard (above) is quite right to point out that moving towards professional tenants and pensioners is only viable in certain parts of the country.
The area that I live in has a relatively low number of housing benefits and quite a high number of pensioners/professionals.
I suspect that ‘social housing’ landlords in other parts of the country will, in certain cases, adopt aggressive tactics to get their rent.
Yes, it is the law of intended consequences for those at the bottom of the pile. The curse of well-meaning politicians strikes again.
Name and address supplied
Nationwide’s stance on housing benefit claimants seems ridiculous.
A professional working person who can pay full rent at the start of a tenancy could easily lose their job or become ill and have to claim housing benefit.
Would affected landlords be expected to end such tenancies and what grounds could they use to get possession during any fixed term?
If not required to evict these housing benefit tenants, then why would a tenant on housing benefit at the outset be any more risk that one whose circumstances changed and had to claim during the tenancy?
It smacks of prejudice towards those who are poor and seems to be a direct result of this Government demonising the poor, just like Hitler did during his rise to power and look at the results of that.
The stories on houses prices that appear continue to amaze me.
From roughly the end of the Second World War right up until the mid-1990s, house price inflation in the UK, averaged about 3.2 per cent per annum.
Then Tony Blair and Gordon Brown came along and for the next 10 years, average UK house price inflation averaged about 18 per cent per annum.
Those two stats should tell you all you need to know about what has gone wrong.
As David Bowie laments in his most recent single, “where are we now?”
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