Asia markets tentative ahead of Opec meeting

Wednesday 2.30am GMT Overview Markets across Asia were treading cautiously on Wednesday, following mild overnight gains for Wall Street, a weakening of the US dollar and as investors turned their attention to a meeting between Opec members later today. What to watch Oil prices are in focus ahead of Wednesday’s Opec meeting in Vienna. The […]

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Banks, Financial

RBS emerges as biggest failure in tough UK bank stress tests

Royal Bank of Scotland has emerged as the biggest failure in the UK’s annual stress tests, forcing the state-controlled lender to present regulators with a new plan to bolster its capital position by at least £2bn. Barclays and Standard Chartered also failed to meet some of their minimum hurdles in the toughest stress scenario ever […]

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Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Categorized | Banks, Property

BoE questions big banks over buy-to-let lending

Posted on November 27, 2016

The Bank of England has questioned big UK lenders about buy-to-let loans, which they have interpreted as a signal to rein in their mortgages for landlords.

Supervisors from the central bank’s Prudential Regulation Authority have visited lenders in the past two weeks to express concern over the buy-to-let market, according to sources at three institutions.

This was despite tax changes introduced earlier this year to cool the market and efforts by regulators to insist banks “stress test” landlords’ ability to repay mortgages, which have already caused a sharp slowdown in lending.

While the PRA did not tell banks to stop extending buy-to-let loans, banks have interpreted supervisors’ raised eyebrows in this way, they told the Financial Times. “The message was clear — we think you have enough buy-to-let loans,” said one.

The PRA declined to comment.

The buy-to-let market has been on the BoE’s radar for some time. Earlier this month the government gave the BoE an official “power of direction”, which enables it to order the PRA or Financial Conduct Authority to demand lenders limit buy-to-let mortgages. The government’s move essentially formalised powers the BoE already had to suggest such a move.

Regardless of the PRA’s concerns, the buy-to-let market was showing signs of cooling because of stamp-duty changes for second homes introduced in April, and tougher underwriting standards for banks. While those standards do not come into effect until January, banks have been tightening their lending criteria in anticipation of the changes.

Average monthly buy-to-let mortgage lending was down a third in the six months since April, compared with the six months before April, according to the Council of Mortgage Lenders.

One senior UK banker said the BoE was “concerned” about aggressive lending practices at some banks. But large mortgage lenders, such as Lloyds Banking Group and Royal Bank of Scotland, have already restricted their risk appetite in this area.

The BoE’s latest snapshot of the buy-to-let market is expected to come on Wednesday, when it publishes its next Financial Stability Report along with the unveiling of this year’s stress-test results.

The PRA has examined the UK’s top seven banks’ balance sheets under various doomsday shock scenarios — even though real-life events such as the Brexit referendum and the US election this year have caused foreign-exchange swings that go further than the ones envisaged by the stress test.

Unlike previous years, each bank will have its own threshold to clear to “pass” the tests.

“Also for the first time they are testing both severe domestic and international scenarios, whereas previous years have focused on one or the other,” said Steven Hall, a KPMG partner. “The impact of conduct risk is expected to weigh heavy on this year’s results as we saw with the 2015 exercise and the European Banking Authority’s July results.”

RBS was particularly badly hit by the EBA’s stress tests published in July, in part because of the likely multibillion pound cost of settling a US investigation into alleged mis-selling of mortgage securities before the 2008 crisis.

Additional reporting by Judith Evans