A housing market rent asunder

The financial services authority yesterday issued an overdue warning to mortgage lenders about the potential problems in the buy-to-let market. The market for mortgages for would-be landlords has mushroomed in the last five years. Fuelled by low interest rates and seemingly ever-rising house prices amateur landlords have identified a way to make a quick buck.

The mortgage lenders, working on wafer thin margins in their traditional business, have been keen to promote buy-to-let as a nice little profit centre.

It is a business gaining pace fast. In the first six months of this year alone, 50,000 people took out buy-to-let loans - more than a third of the total number of mortgages in this sector. The market is now worth £10bn.

Yesterday the FSA decided it was time to sound the alert. The authority said that borrowers were in danger of over-reaching themselves. As in the early 1990s, rising interest rates could leave many borrowers overstretched, with rental income not covering their repayments - especially those who have taken their borrowing to the maximum, which is now up to 90% of purchase price. Falling house prices would make the problem far worse.

If the would-be property entrepreneur is also left with one or two months between tenants - a common phenomenon in the rental business - there is a recipe for disaster. The response of the main buy-to-let lenders to the FSA's plea for restraint was a collective raspberry. Bristol and West completely disagreed with the FSA's analysis.

Demand for rental property was huge, the lender said, and looked likely to grow. Never mind the fact that a survey out last week showed that rents in London were falling - and it is in and around the capital that the vast bulk of buy-to-let business is done.

Another lender, Britannic Money, questioned the FSA's right to issue such a warning and suggested that the watchdog should keep its nose out of something that was not its business.

In the wake of the last housing downturn, the building societies, which had repossessed hundreds of thousands of homes, claimed that they had learned their lesson and would never again lend people so much money in relation to their income and to the value of the assets securing the loan.

They clearly learned nothing and their reponse to the FSA warning speaks volumes about the respect they have for the organisation. As for the FSA, its warning should have been made a year ago.

S&N's round


Scottish & Newcastle, the brewer, yesterday had nothing to say about the potential consolidation within the beer industry, despite last week's leaked document which showed that Interbrew was making plans to stay ahead in the race by considering a merger approach to South African Breweries before SAB leap into bed with S&N and Miller.

Chairman Brian Stewart and his brewing supremo Guy Dickson were instead getting in a tremendous froth about the potential for selling Foster's in France since the Sydney Olympics proved to your average Frenchman that Australia was not a cultural desert. Though quite what that has to do with flogging lager we are not told.

But S&N cannot ignore the global manoeuvring in the beer business. Aside from buying Kronenbourg from Danone last year, S&N has proved a timid dealmaker. With net debt of £1.5bn it cannot afford to buy, so merger is its only option. It should move fast or the best candidates will go elsewhere. But do not hold your breath, S&N's record has rarely included seizing the initiative.

Enron evasion


Royal Bank of Scotland's silence about its exposure to the collapsed Enron energy company is puzzling. Neither is it doing anything to help its share price, which after reaching more than £18 has now fallen back to just a tad above £15.50. By staying quiet, Royal Bank is either arrogant, brave or uncertain of its exposure. While there are rules governing what companies must tell the stock market, there are times when companies can take matters into their hands.

True, Barclays did not mention Enron by name in its statement on Monday but it did tell the City that its bad debt provisions would be stable. Some sceptics still remain - but at least Barclays acknowledged investors' concerns and said something.

In jittery markets, Royal Bank's refusal to speak only serves to make investors worry. To a rational head, its silence implies that its losses cannot be material. But to a nervous investor, it conveys an idea that Royal Bank is not yet sure of its exposure because of its takeover of NatWest, a big player in the corporate market.

Unlikely, yes - but a troublesome rumour nonetheless.