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Announcement:

Moody's: Authorities seek to curb risks in mature buy-to-let mortgage markets; promote development in nascent markets

01 Dec 2016

London, 01 December 2016 -- Moody's Investors Service says that the buy-to-let (BTL) mortgage sector is expanding globally, prompting the regulators in the more mature markets to curb some of the associated risks, while those in more developing markets are further encouraging its growth.

Furthermore, the sector -- where investors borrow to purchase residential properties that they let out -- represents a material or growing part of the overall mortgage and residential mortgage-backed securities (RMBS) markets in many countries.

In this context, Moody's in a just-released report examines the mature BTL mortgage markets of the Australia, the UK, the US and Japan, and the smaller or developing BTL sectors of the Netherlands and China.

Specifically, the report -- "Regulations Easing Risks in Mature Markets; Developing Markets Gain Traction" -- covers the dynamics across these different jurisdictions, as well the subjects of as regulations, underwriting standards and loan performance.

Moody's notes that regulators are responding to various types of risk. For example, in Australia, the risks for BTL investors are rising, owing to record levels of new apartment construction in some key urban areas, while in the UK, concerns are apparent over underwriting standards in view of the strong growth in BTL loans.

On the issue of regulation, the report says that in Australia -- which appears to show the highest level of BTL mortgages as a proportion of the overall mortgage market -- the regulators have moved to slow BTL lending by, for instance, limiting authorised deposit-taking institution lenders to growing volumes of these loans by a maximum 10% a year.

By comparison, in the UK, the regulators and government have tightened rules in relation to BTL mortgages, because of concerns that excessive growth in the volume of these loans presents a systemic risk to financial stability.

In the US, eligibility requirements for BTL mortgages are typically tougher than requirements for mortgages to owner-occupiers. However, BTL mortgages are not subject to as many regulations as residential loans. And in Japan, the BTL market is becoming increasingly competitive, with more lenders active in the sector.

Moody's sees good growth potential for the BTL sectors in the Netherlands and China. In the Netherlands, low interest rates and rising housing prices will bolster the sector, but a shortage of properties will dampen momentum.

Meanwhile, in China, the State Council -- the country's chief administrative authority -- is promoting its development as a way to improve urban housing conditions. As such, we would expect to see an increase in the stock of BTL housing in urban areas, particularly in first-tier cities, as the market matures.

Complete figures are unavailable for each country on the size of the BTL mortgage sector, as a proportion of the overall mortgage market, but for Australia, it is 35%, the UK, 15%, and the US, around 7%, while figures are unavailable for Japan.

In the case of the two developing markets, for the Netherlands, the proportion is negligible, but is expected to rise, given -- for example -- expectations that wealthy private investors will enter the BTL market, and for China, data is unavailable.

With the securitization market, for Australia, the proportion of BTL residential mortgage backed securities to the overall RMBS market is 35%; for the UK, 19%; for the US, less than 2% of private label RMBS, although BTL mortgages are also contained in RMBS backed by owner-occupied loans; and for Japan, around 9%. With the Netherlands, the proportion is negligible and, in the case of China, data is again unavailable.

Subscribers can read the full report at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBS_1042762

NOTE TO JOURNALISTS ONLY: For more information, please call one of our global press information hotlines: New York +1-212-553-0376, London +44-20-7772-5456, Tokyo +813-5408-4110, Hong Kong +852-3758-1350, Sydney +61-2-9270-8141, Mexico City 001-888-779-5833, São Paulo 0800-891-2518, or Buenos Aires 0800-666-3506. You can also email us at mediarelations@moodys.com or visit our web site at www.moodys.com.

This publication does not announce a credit rating action. For any credit ratings referenced in this publication, please see the ratings tab on the issuer/entity page on www.moodys.com for the most updated credit rating action information and rating history.

Gregory Davies
AVP - Research Analyst
Structured Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Annabel Schaafsma
MD - Structured Finance
Structured Finance Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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