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PRA boss warns housing crash would hit retirement savings


PRA chief executive and incoming FCA boss Andrew Bailey has warned savers investing in property to fund their retirement could be at risk if house prices slump.

Yesterday, the PRA proposed new minimum underwriting standards for the buy-to-let sector, arguing that the market is defined by short-term interest-only mortgages that leave consumers vulnerable to hikes in base rate.

And speaking to the Telegraph, Bailey says while the growth in buy-to-let lending is likely to continue in the face of low interest rates and low annuity rates, a crash in house prices would pose risks for pensioners and savers.

He says: “Looking across the whole landscape I do think this whole question about long-term savings and retirement provision and the role of the housing market is important.

“I’m not surprised at the growth of buy-to-let lending and the rental market. It’s obviously an issue of how long-term saving behaviour translates into asset holding and asset values. The point we are emphasising today is that nobody benefits if one of the outcomes is unsustainable lending practises.”

Bailey adds: “People might form expectations about what the necessary long-term saving to support their retirement will be, which can then [if house prices fall] be transformed quite suddenly in ways that frankly are unwelcome.”



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The Bank of England’s Andrew Bailey is to become the new head of the FCA. Bailey will succeed Tracey McDermott, who has been interim chief exeuctive since Martin Wheatley stepped down in September. Bailey will take up the position once a replacement has been found for him at the Prudential Regulation Authority, where he is chief executive. He […]


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There are 10 comments at the moment, we would love to hear your opinion too.

  1. Another pointless statement from a clueless official.

    Who are these people taking short term interest only loans?

    Whilst a drop in house prices would reduce the gains already made it would require monumental mismanagement of the economy to create a crash that reduced prices to such an extent that it proves to be a disaster.

    Also it is unlikely that rental incomes would be affected meaning investors would still get their income.

    • Really Steven? Are you trying to tell me property in London which was vastly inflated before the last upswing is immune to a crash? It’s £700k for a 3 bedroom terraced property round here, what is par value who knows, but for anyone trying to get on the property ladder in London even with above average salaries it means an eye watering mortgage.

      With regards to investing in property out of retirement savings in a pension plan, you could not move from a more tax efficient to tax inefficient investment.

  2. As it seems politicians won’t tolerate a decrease in house prices – and a decrease in the value of the property portfolio they’ve funnelled their expenses into – any more than they would tolerate a cut in their platinum-plated pension entitlements, this would seem to be a rather remote possibility.

  3. Steven – surely, if houses fell sharply and significantly in value, rents would fall given that less people would need to rent as more can afford to buy?

    For me, the first real warning was when the Government had to intervene in the housing market. Since then, it would appear that the Government, whilst not discretely saying so, has got BTL firmly in it’s sites.

    There has been a significant uplift on tax on the way in, (typically) tax as you go along and more tax on the way out on gains that other asset classes.

    Add to that the PRA making comments like this (above) and also comments yesterday to lenders about their suitability criteria, it feels that there is significant concern ‘amongst the powers that be’ that the rental property market is a concern.

  4. The biggest risk for people who buy to let properties in the current market to supplement retirement income is” liquidity”.

    Using the example of London most of the London boroughs rental yields are now sub 4% nominal With some of the central areas achieving 2% (Westminster been one) . If a person required the money urgently they would have to drop the value of the property in some of these areas by 30/40 % to attract a buyer quickly

    Personally speaking and talking to a property developer who has an substantial portfolio of properties Today’s buy to let investors should be looking yields of 7% to compensate them for the risk they are taking

    According to our asset allocation analysis investors in a portfolio of 80% Bonds 20% equities could expect to see return of 3.8%. Moving further up the scale to 50/50 portfolio they should expect nominal yields of around 5.8% These yields are far greater than the BLT market is offering in London If you had a portfolio in 100% in equities the mid point yield to day is 7.8% nominal. Looking back to 2008 the loss from its peak to trough of that 100% equity portfolio was 35% taking 50 months to recover. This was a similar story when I sold last year It took me 18 months and a reduction in the original sales price of 35% to get a quick sale

    Yet most of those BTL investors are baby boomers who have grown up see property as a one way bet with an eye on Capital appreciation rather than yield. Which is what the professional investor does not do.
    No wonder Mr Bailey is concerned

  5. Looks like Andrew Bailey is the right man to lead the FCA after all. Imagine someone in the bank of England actually understanding that if you invest in an asset which could drop in value it will have a detrimental effect on the net value to the investor? There a fact so incredibly simple that even a top banker knows it.
    What a total non-story. What are they going to do about the number of foreign wealthy people buying up property in London to hive off cash from their own country? Do you really think they care if they lose 10.15 or 20% on paper in the short term compared to loosing the heap if they kept it in their own country. Keep it for a while sell it, pay some fees and bobs your uncle.

    • Marty you are right they see property in London as a security blanket in case Mr Putin or President Xi Jinping needs the cash Cannot wait for the flood money when Donald becomes President!

  6. The natural way to deflate the BTL “bubble”, if it exists, is to build council houses with affordable rents. Thousands of them to replace the ones that Thatcher pillaged.

  7. Oh come on sanjay, at least put up a proper arguement.

    I have checked and the PRA has responsibilities outside London. If someone can afford to buy a 700k house to let out I very much doubt how the economy fairs will affect their standard of living.

    Paul, for rental returns to drop property demand needs to fall. For that to happen property developers would need to massively over commit.

    I take it that neither of you have read the ludicrous EU proposals that is really behind this.

  8. Another pointless excercise in stating the bloody obvious – this guy gets paid for this you know !

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