By Ross Meader
This is the latest in a series of articles published by the Bank of England, outlining plans for a new loan level data collection covering buy-to-let and similar types of lending.
In April 2016, the Bank of England published a consultation article on the new buy-to-let data collection. In July, the Bank published a summary of the feedback responses and outlined planned changes to the collection. This included details of phase 1, to be implemented from the reporting of 2017 Q3 data. In September, the Bank outlined details of phase 2 of the collection, to be implemented from 2018 Q1 data. Phases 1 and 2 apply to widely available buy-to-let lending products carried out in the business units of reporting institutions that focus on individuals and small businesses.
Phase 3 of the collection
During the consultation, firms expressed concerns about the greater complexity in reporting relevant lending undertaken by their corporate business units because these loans are not currently designated as ‘buy-to-let’ lending. The Bank decided to defer reporting of corporate business unit lending to a separate third phase, to be implemented from 2018 Q3 data. The Bank has held a series of meetings with the Council of Mortgage Lenders and a sample of firms to develop the third phase attributes and definitions. The Bank has today published details relating to this phase.
The Bank has defined the scope of loans that should be included and intends to collect loans secured on rental residential properties, where the loan assessment is made on the basis that the property will be subject to a rental agreement.
The Bank is aware that firms distinguish lending between retail business units and corporate business units differently. The phase 3 collection intends to collect enough information for the Bank to map across to the retail collection for loans with similar characteristics. The collection also includes additional information necessary for capturing bespoke loans more typical of corporate business unit lending in general, including those secured on a large portfolio of properties. The Bank has taken into account the existing data collections covering such loans.
Phase 3 covers 32 attributes, compared to 51 attributes for phases 1 and 2. There are seven attributes unique to the phase 3 collection.
Five of these have been added because some loan assessment criteria are applied to corporate book loans but not to retail book loans. For example, corporate book loans may be assessed on the basis of a wider portfolio rather than the loan being extended, which may distort derivable calculations (such as the loan-to-value or interest cover ratio (ICR)). Therefore, the Bank seeks to collect these data in relation to the wider portfolio. Additionally, a debt service cover ratio is sometimes used instead of, or in addition to, an ICR, which will be collected in such cases.
‘Non-amortising balance’ will capture the residual loan value for the interest only element of these loans in the case of partially amortised repayments (for part and part mortgages).
‘Recourse’ ‘will identify loans subject to a personal guarantee or where the lender has recourse to other assets, to help analyse risks arising from the lending.
A list of phase 3 attributes can be found in Appendix 1.
Given the extent of the differences to the retail book collection, phase 3 will be a separate data collection.
The Bank proposes that only those firms or groups of firms carrying out new lending exceeding £10mn annually across at least 5 loans will be required to report their relevant corporate book lending. Although information currently available to the Bank is incomplete, indicative evidence suggests that the number of corporate loans secured on rental residential properties is significantly smaller than the number of loans on standard buy-to-let products. There are also differences between the populations of firms specialising in retail and corporate lending.
These reporting firms will be identified through targeted bespoke surveys and from existing data sources available to the Bank.
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