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Bank of England
Buy to Let
Excessive Credit Growth
Having been rather absent from the blog lately I have been somewhat spoilt for choice for property related things to write about. Whilst one might initially assume this is a good thing, for me it leads to a traffic jam of thought.
Anyway – one thing at a time!
Parliament is on holiday: Not much to write about concerning Grant Shapps' antics this week other than him apparently being perplexed by reports of his own local party membership numbers being down – contrary to his own numbers of course.
The Olympics: A veritable sack of medals for the UK – Well done, hopefully it might stave off more quantitative easing for another 5 minutes, or they can be used as coins in parking meters in central London if the economy continues the way it is.
The Swiss: Famed for chocolate, banking, gold, cuckoo clocks and hiding things – the Swiss have decided their banks need more capital to offset a possible bubble burst in the Swiss property market caused by excessive credit growth.
Excessive credit growth is in essence too much lending. In this case in the form of mortgages. UBS reportedly said at the end of last month "if property values fell by 20 percent, 99.7 percent of its exposure to Swiss real estate would remain covered by collateral. While prices are still climbing in some regions, at this time, we don't believe this could destabilise the Swiss economy or cause major losses for UBS"
Considering the loan to value ratio generally available from Swiss banks is limited to around 70% - 85%, and UBS as a bank would be touching negative territory if house prices fall by 20% it illustrates quite well how close to the line even the Swiss banking industry is prepared to go with risk.
Whether one believes the comment about destabilisation or major losses for UBS themselves is beside the point – the fact is the regulators and the Government have noticed a serious potential problem in the making and is enforcing legislation to fix it.
One might initially be thinking "well so what?" admittedly I did too to a degree. However, when you think for just a moment about what is going on in Switzerland right now, and then compare to what has happened to the banking, lending and property sectors in the UK (and many other countries), it really does provoke exclamations along the lines of which I cannot write here.
Does the UK stance on the Euro make much difference? Not really in this instance. Both countries are on the periphery of the Euro doom-fest currently underway.
Strangely though, there is a lack of press covering two poignant topics in Switzerland that are conversely rife in the UK.
First time buyers can't afford deposits, blaming the Buy to Let brigade for buying up all the cheap housing and renting it too them for too much money.
The Buy to Let brigade respond with rebuttals like "BTL stealing FTB homes is baloney" and when the suggestion of regulation is made the response is along the lines of "Those angling for regulation lack understanding about Buy to Let as a commercial product. Believing regulation can boost consumer protection is delusional."
The failings in the lending sector in the UK are enormous – the concept of a mortgage over 100% LTV is unheard of in Switzerland, yet in the UK the likes of Northern Rock were dishing them out to all and sundry, more recently Housing Minister Grant Shapps was heard to be applauding high LTV lending, and to top it off, top brass at the Bank of England have finally admitted that excessive lending was perhaps not such a good idea.
I could go on almost ad-infinitum highlighting the differences, and I think we all know little would change as a result.
Instead – Hats off to the Swiss for having the balls to set about organising some regulation – ahead of the original planned time (2013) to prevent economic disaster caused by irresponsible halfwits in banking and parliament excessive credit growth.
If moving to Switzerland isn't an option for you in a bid to find some housing market and lending sanity, take solace in the fact that it would appear your local dentist may well now be in a position to offer you advice on "The Best Way to Buy to Let" [http://www.dentistry.co.uk/news/5347-The-best-way-to-buy-to-let].
Next week – I will be giving advice on "The Best Way to do Your Own Root Canal Surgery"
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