By Ross Meader
The collection will support the needs of the Monetary Policy Committee, the Financial Policy Committee and the PRA Board1 and therefore aims to combine Bank of England statistical and regulatory data requirements into one collection for the first time. Under the Bank of England and Financial Services Bill, which is currently making its way through Parliament, it is proposed that the PRA will become an authority within the Bank. This legislation, if passed, could take effect later in the year and would result in the PRA Board becoming a committee of the Bank, the Prudential Regulation Committee. Firms should, however, experience no change in relation to the proposals set out in this technical consultation. We invite comments on the proposed list of attributes, the potential difficulties in obtaining data on lending to corporates, and the proposed timing, by 10 June 2016.
OverviewThis article sets out Bank of England proposals to develop a new loan-level data collection on buy-to-let lending activity. The proposed data collection addresses the needs of statistical and regulatory data users in one Bank of England collection for the first time, and the Bank, having had regard to the Statistical Code of Practice, considers that it is appropriate to seek views from stakeholders by way of a public consultation.
The collection will build on a data set currently collected by the Council of Mortgage Lenders (CML), but with additional attributes and reporters in order to provide more detail and greater coverage. Definitions of common attributes have been aligned to those used for the Product Sales Data (PSD) collected by the Financial Conduct Authority (FCA), where applicable. The proposed attributes and definitions (see Appendix 1) have been developed following liaison with both the CML and FCA.
The proposals have been developed in response to the increasing importance of buy-to-let lending in understanding overall housing market dynamics, which in turn play an important role in understanding developments in the broader economy. For this reason, it is important that the Monetary Policy Committee has timely data on developments in buy-to-let lending. Given the increasing use of granular data to understand macroeconomic dynamics, the Bank of England proposes to collect data at the level of individual loans, rather than at the aggregate level for each reporter.
The Bank of England proposes to collect these data under Section 17 of the Bank of England Act 1998.
It is anticipated that the data collection will also be useful for financial stability and microprudential purposes. Serving all three needs with one collection avoids the burden of establishing separate statistical and regulatory collections.
The collection will serve as an important data source for the Financial Policy Committee (FPC) to monitor – and if necessary mitigate – risks to financial stability. The FPC supports proposals to develop a data collection for systematic monitoring of terms and conditions on buy-to-let lending.
The proposals should be read in conjunction with HM Treasury’s consultation on giving powers of direction to the FPC on buy-to-let lending. In the event that powers are granted and applied, the FPC would need a consistent and robust data collection in order to calibrate, monitor and enforce any policy adopted for financial stability purposes.
The collection will support the objectives of the Prudential Regulation Authority (PRA) in regulating firms. The PRA issued a consultation paper on buy-to-let lending underwriting standards on 29 March 2016 and the additional data proposed will assist the PRA in monitoring how firms have taken account of these new standards.
Separately, the PRA has also today published a consultation paper setting out proposals on future regulatory data reporting of balance sheet, statement of profit or loss and forecast capital data. The PRA’s consultation addresses the role of granular data in general.
This article is relevant for all UK firms (including unregulated firms - firms that are neither regulated by the FCA or PRA) that carry out buy-to-let lending.
The Bank intends to publish aggregated data on buy-to-let lending. The Bank aims to publish within twelve months of the start of the new collection depending on assessments of the data quality of the initial submissions.
The Bank of England proposes to collect loan-level data from firms relating to new buy-to-let lending. This will provide greater analytical flexibility to users within the Bank and reflects a growing demand from users of financial data for more granularity. It will reduce the likelihood of requests for additional data to firms on a regular or ad-hoc basis in the future.
The CML currently collects both aggregated and loan-level data on buy-to-let lending. Their loan-level data collection is reported by 16 lenders, covering around 90 per cent of the value of total buy-to-let lending flows. It includes 28 attributes on the flow of new lending compared to 46 for the proposed collection.9 The Bank and the CML have been working closely together to develop this collection to collect more attributes and to provide greater coverage of the market, including CML attendance at working group meetings.
Following initial discussions with reporters, the Bank proposes that firms will report data on a quarterly basis, twenty working days after the end of the quarter. Firms fulfilling the reporting criteria will be expected to deliver data for the first time in July 2017, relating to 2017 Q2. The Bank is interested in views on the feasibility of the proposed delivery date from reporting institutions.
The Bank proposes that all firms with new lending exceeding £20mn annually will be required to report. Reporting will cease if subsequently annual buy-to-let lending flows drop below £10mn. This will be measured on a rolling basis, with firms asked to report if the cumulative annual threshold is met for two successive quarters. While a firm level collection is proposed, all entities within scope will need to report if the group meets the reporting threshold. This will give a reporting population covering approximately 99% of the market. A suitable notice period will be given to firms who meet the threshold for reporting.
Stocks and flows
The proposed collection will cover new lending originated from 1 April 2017 onwards, with attributes defined at the point of loan origination. The Bank does not propose to collect data on the attributes on the outstanding stock of buy-to-let loans.
Retail and corporate buy-to-let lending
The proposed collection covers buy-to-let lending initiated from both the corporate and retail books, where retail exposures are defined in accordance with Article 123 of the Capital Requirements Regulation (CRR). The Bank is aware that there may be potential difficulties in reporting buy-to-let lending initiated from corporate books for some lenders. Where this is the case, respondents to the consultation are requested to distinguish between the reporting of retail and of corporate buy-to-let lending in their comments.
The proposed definition of buy-to-let lending for the purposes of this collection is stated in Appendix 1.
This definition includes lending to UK residents secured on properties outside the UK and lending to non-residents secured on UK properties. It also includes ‘consumer’ buy-to-let lending. A buy-to-let mortgage contract which is not entered into by the borrower wholly or predominantly for the purposes of a business carried on, or intended to be carried on, by the borrower. A small number of regulated buy-to-let mortgages (where a relative of the borrower occupies and lets to other persons) will be captured in both the PSD collection and in this proposed collection. While this collection has generally sought to minimise overlaps, some overlap is required in order to capture attributes specific to buy-to-let lending that are not captured in the PSD, such as monthly rental income and borrower tax rates.
The Bank proposes that mortgages on properties used for holiday letting should be excluded from the collection, as they represent a different market. Given its temporary nature, the Bank also proposes that consent-to-let (consent-to-let allows a borrower to let out a property on a temporary basis due to a change in circumstances) should be excluded from the collection. The proposals include let-to-buy (let-to-buy allows a borrower to remortgage their current main residence onto a buy-to-let basis, providing they are purchasing a new property simultaneously as their main residence) and second charge buy-to-let mortgages.
The proposed collection includes rate switches (rate switches occur when a mortgage is moved to a new product with the same lender, but there is no additional borrowing. This does not include mortgages moving onto a reversion rate at the end of their fixed or discounted term), where a subset of attributes will be reported that are relevant to the particular transaction, but these should only be reported in cases where the loan was originated after 1 April 2017.
List of attributes
The attributes and accompanying definitions can be found in Appendix 1.
In expanding the CML’s existing collection, the Bank has considered both existing CML and PSD definitions, where appropriate, liaising with the CML and FCA on the proposed definitions.
To facilitate comparison to the Bank of England’s house purchase approvals data, the Bank is proposing to collect two memo items (the number of buy-to-let house purchase approvals and cancellations in a quarter) as aggregated totals.
The Bank is interested in views on the proposed list of attributes and if any present particular issues to report within the proposed timescale. The Bank will welcome comments on points of detail on the reporting field definitions.
The proposed data collection will include certain attributes that relate to individuals and which will constitute personal data under the Data Protection Act 1998. This refers to the combination of full postcode and date of birth. They will require secure transfer and storage and be subject to appropriate access controls. At all stages, the Bank will ensure it meets all necessary legal requirements in handling these data, and will ensure appropriate measures are in place to protect the data.
In addition to sharing the data with the PRA, the Bank anticipates sharing the data with the FCA, based on the need to share firm level statistical and regulatory data. The Bank will ensure that in sharing any data, it will do so on an appropriate legal basis.
Costs and benefits
The Bank has assessed the costs and benefits of this new data collection following discussion with internal user areas and a sample of reporting firms.
This data collection will act as the primary source for buy-to-let lending data across the Bank. Data required for statistical and regulatory needs have evolved separately, but there is an opportunity to consolidate these data collections and account for future statistical and regulatory needs, to reduce reporting burden on firms over time.
The data collection will make a material contribution to the Bank’s understanding of housing model dynamics, which are important for monetary policy. Traditionally for this purpose, the Bank has collected mortgage data at an aggregated level and published statistical outputs. The Bank plans to use this new granular data source for richer analysis and to publish aggregated data.
As already highlighted, this collection will assist the FPC in monitoring risks to the financial system emanating from this market, and help them calibrate, monitor and enforce potential policy action they deemed necessary.
The PRA will also use this data collection to systematically monitor underwriting standards in buy-to-let lending, based upon the Consultation Paper which was issued on 29 March 2016.
Some data on buy-to-let lending are currently available to the Bank through a variety of means, but there is incomplete market coverage, inconsistent definitions and insufficient detail. For example, only the current voluntary CML loan-level collection contains data necessary to analyse the distribution of loan attributes and to calculate interest coverage ratios at various interest rates. See Appendix 2 for a summary of existing sources of buy-to-let lending data.
The timeliness of the data is a key feature, enabling the Bank to interpret evolving housing market dynamics, anticipate threats to financial stability and detect changes in underwriting standards.
Costs to firms may vary depending on their current systems. Larger buy-to-let lenders currently reporting to the CML will need to add attributes to their existing reporting systems. Lenders not currently reporting to the CML will need to set up new reporting procedures, but will generally have a smaller loan book.
The incremental costs of the collection are thought to be mid-range for developments of existing or new data collections as the majority of data appears to exist in reporting institutions’ systems already, with most of the remainder available in some form, if not necessarily captured in IT systems. For some firms, a minority of attributes might be more problematic to capture or extract from their systems. The Bank has considered the feedback it has already received and decided not to collect certain attributes (for example, intermediary fees and information relating to cross-collateralised loans), where the cost was deemed greater than the likely benefit.
The consultation closes on Friday 10 June 2016. The Bank invites comments on the proposed list of attributes, the potential difficulties in obtaining data on lending to corporates and the proposed timing. Please send your responses to firstname.lastname@example.org.
The Bank will consider feedback and will aim to finalise requirements by the end of June 2016.
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