Mark Carney and the FPC are watching Buy to Let

by Neil Patterson

9:58 AM, 16th December 2015
About 3 years ago

Mark Carney and the FPC are watching Buy to Let

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Mark Carney and the FPC are watching Buy to Let

Mark CarneyIn an interview with the Financial Times yesterday defending ‘Forward Guidance’ Mark Carney, The Governor of the Bank of England, expressed concerns if Buy to Let investors were to all sell at the same time in the event of a fall in house prices.

Mr Carney said “So we do have to be careful around that sector. And I think collectively there are a number of things happening and we are watching it, we are watching it closely and we will take action”.

This is nothing new and the FPC had previously expressed concerns for the stability of the housing market over the increased level of Buy to Let lending and what might happen if investors were to rapidly exit.

There are now over 2 million people declaring property related income to HMRC and 1.7 million Buy to Let loans representing 16% all outstanding mortgages in the UK.

It is only prudent that the Bank of England consider if action may be required to such a large part of the lending and housing sector, but so far they have taken no recent action specific to Buy to Let.

As the Bank of England make no comment on political policy, and indeed seemed surprised by the capping of Buy to Let mortgage interest relief, they may consider this along with the increase in stamp duty to be more than effective enough to cool the market.

Mark Carney’s comments have all been previously stated and he is very good at using the old economics ploy of affecting markets by doing nothing other than managing peoples expectations.



Comments

Dr Rosalind Beck

10:22 AM, 16th December 2015
About 3 years ago

Yes, Neil. That was what I thought. There was nothing new - just a repetition of this weird idea that we might all sell en masse. If things get that bad, the whole country will be in the sh*t and there will be a lot of people worse off than BTL landlords.

Neil Patterson

10:24 AM, 16th December 2015
About 3 years ago

Yes I agree Ros.

I thought I had better comment on what was actually said and the context it was said in as the press as usual blow everything Mark Carney says up out of proportion and usual misunderstand its meaning.

steve p

11:05 AM, 16th December 2015
About 3 years ago

It is a bit bizzare that he keeps mentioning it... We know from stats that most landlords only have one property, at the moment at least if a landlord were to sell he would face a potentially large CGT bill and then have the issue of trying to find somewhere to invest the money.

Even when property goes down most people are still relatively positive about prices and will always say in surveys they believe long term prices will go up. Most landlords that have kept the property for a period of time have already seen gains so I dont see how a dip in prices would make anyone rush to sell, just like we saw in the banking crisis when prices dipped landlords were not selling, as long as they could still pay the bills.. Ironically the thing that is more likely to make LL sell is if rates go up, because of the new alice tax will have a double whammy affect.

Personally the properties I have are for my pension, even if they go down i have nowhere better to put the money and they are relatively low LTV so even if rates rise a lot I wont need to sell. Maybe I am wrong but I think they have read the market wrong... More of a danger would be far east foreign investors buying places as if something happens in their own country area then we could catch a cold and everyone bail out at the same time. I dont think Carney has read the sector correctly.

Barry Fitzpatrick

11:49 AM, 16th December 2015
About 3 years ago

Carney is just like all other politicians - they just don't understand how the PRS operates. He obviously thinks that investing in property is like buying shares, and that Landlords will sell at the first sign of a drop in prices. And for some reason crippling the PRS with punitive taxes so that they make a loss, and forcing some Landlords in bankruptcy won't cause Landlords to sell up .

michael fickling

12:17 PM, 16th December 2015
About 3 years ago

Fact is that with a fifteen percent market share and even with a quarter of us selling at the exact same time the market dilution would be 3.4% versus 96.6%. The effects of that on house values is going to be very small.......and this guy is in charge of the B of E. ???
What the hell is he on ??...

More incompetence and more myths being created!! ....He needs to engage a mathematician and listen to them.

Steven Burman

12:23 PM, 16th December 2015
About 3 years ago

I agree with the other posts, BTL landlords are highly unlikely to sell en masse due to a fall in property value. However, I am not sure that I agree with Barry Fitzpatrick's cooment that 'And for some reason crippling the PRS with punitive taxes so that they make a loss, and forcing some Landlords in bankruptcy won’t cause Landlords to sell up' is true.

If the only way to avoid bancruptcy or financial hardship is to sell up then that is what will happen. Osborne's assualt on the PRS is going to put many private landlords in exactly that position. My concern is that there will be a significant number of existing BTL properties coming to the market in a short space of time. It is quite feasible that this could have an adverse effect on prices as the market becomes saturated.

I have started to make plans to dispose of my BTL's as Osborne's tax burden will outweigh my rental income by 2020 and I do not want to rely on astronomical rent increases (which may or may not materialise) to sustain my current level of income.

I have made the decision to abandon the UK BTL market and invest elsewhere. I expect many others to do the same.

Will this will have a significant effect on prices? Only time will tell!

SB

Alison King

12:46 PM, 16th December 2015
About 3 years ago

What with Mark Carney worried we might all sell and Osbourne hoping we will, it's no wonder the politics surrounding this seems so confused.
Of course we all have contingency for interest rate rises. We've been there before. Carney hasn't, and Canada is a very different place.

Annie Stevens

12:48 PM, 16th December 2015
About 3 years ago

Why on earth would we rush to sell if prices dropped, or for that matter, if interest rates rise a couple of points? As Barry said, we aren't idle speculators dealing in stocks and shares, we're running a long-term business, which for many is our livelihood, and providing homes to people. Prices have already dropped, despite all the hype about prices and rents rocketing. I don't believe a word of this, outside places like London. What am I saying, there are no other places like London, yet what happens there dictates policy for the 95% of the rest of us. Obviously I only have personal experience of the Glasgow market, but I look online a lot at other Scottish areas, and I watch TV programmes such as Homes under the Hammer. Everywhere else seems to have reasonable house prices and rents, many even lower than Glasgow, for some very decent properties. I'm sure like myself, most of us will ride out any drop in prices, leave our tenants secure in their homes, and await the inevitable time when prices pick up again, at least enough to redeem our mortgages at the end of the day. If there is a capital gain that will be a bonus. What is far more likely to cause a rush to sell is clause 24, yet all these politicians and so-called financial experts can't seem to see it?!

Appalled Landlord

12:58 PM, 16th December 2015
About 3 years ago

Mark Carney is doing what his predecessor, Mervyn King, did – he is trying to talk down the housing market without actually doing anything.

How many of us remember King’s speech in 2004 when he asserted that the higher house prices go up, the further they will fall, as if they were subject to the law of gravity rather than the law of supply and demand. The Daily Express’s headline the next day was “House prices to fall 50%”. A buyer for one of my HMO’s pulled out that day, “on the advice of his accountant,” - and he was not alone. My solicitor told me that they had no conveyancing work for 3 weeks after that.

Then prices resumed their rise until August 2007 when Northern Rock’s policy of borrowing short and lending extremely long came to grief. A pity no-one in authority spotted that little flaw.

Appalled Landlord

13:04 PM, 16th December 2015
About 3 years ago

Reply to the comment left by "Annie Stevens" at "16/12/2015 - 12:48":

Hi Annie

I agree. Apologies to those who have read this on the Summer Budget thread:

When the sales market died in August 2007 the BofE Bank Rate was 5.75%. My partner and I were making losses but we had to grin and bear it because not enough people were buying, due to lack of confidence and a lack of available lending.

People even became reluctant landlords because they had to relocate without being able to sell. Others became accidental landlords through inheritance. This increase in supply forced rents down.

Admittedly, this squeeze caused some landlords, who did not have enough resources, to have property repossessed. However, I do not think the price fall was caused by many people choosing to sell cheaply. Prices fell because of a dearth of buyers for the reasons above. Both experienced landlords and reluctant/accidental landlords held on to their property because they knew that prices always recover, then go on growing.

Since that time rents have increased. Mark Carney has indicated that BR will not exceed 2.5% in future, and that it will take a long time to get there. So I do not envisage landlords making losses, and if they did, they will have built up savings to withstand them.

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