Buy-to-let market 'is now closed'

Job losses at Bradford and Bingley will happen over time

The buy-to-let housing market is "closed", the boss of nationalised bank Bradford & Bingley has said during scrutiny from a committee of MPs.

Executive chairman Richard Pym said that so many deals had been withdrawn that the market was completely different to a year ago.

He also said a higher proportion of B&B's customers were in arrears compared with the industry average.

The comments were made in a Treasury Committee banking inquiry hearing.

The bank has been the biggest operator in the UK buy-to-let market in recent years.

B&B, which had its mortgage business nationalised in September, has a £40bn loan book.

Some 60% of these mortgages are buy-to-let customers and another 20% are self-certified mortgages, which are common among people such as the self-employed.

Arrears

Mr Pym told the committee that at the end of September the proportion of borrowers in arrears on their mortgages stood at 3%, higher than the industry average.

I believe you have inherited a shambolic organisation with a giant headache John McFall, Treasury Committee chairman

He expected the number of staff dealing with arrears inquiries to double, from the 200 employed in August, by the time arrears levels hit their peak next year.

One independent report suggested that, taking falling house prices into account, B&B could lose about £1.2bn.

The buy-to-let market is expected to be worse hit than the residential mortgage market. Mr Pym, however, said the recent cut in the Bank rate to 3% would have a "significant effect" on assisting landlords, assuming rents did not also fall dramatically.

Job losses

At the end of August, B&B had 3,100 staff, the committee heard.

This dropped by 1,700 following the transfer of the savings business to Abbey, and 300 jobs went when business was closed to new mortgages.

Mr Pym said it was "mindful of its obligations" to the community in West Yorkshire. Any further job losses would be phased, with 50 to 100 voluntary redundancies in the pipeline.

An agreement with the government means there will be no compulsory redundancies before 31 March next year. Yet he was unable to give a final level of job losses by the end of next year.

Former chairman Rod Kent said the board was "deeply sorry" that the bank needed to be nationalised.

Committee chairman John McFall, closing the session, told Mr Pym: "I believe you have inherited a shambolic organisation with a giant headache."

Mr Pym confirmed he would step down from his job next summer, without any compensation, but having picked up a guaranteed cash bonus of £326,000 spread over two years.

'Not aggressive'

The committee also heard from bosses at nationalised bank Northern Rock, which was also doubling the number of staff dealing with arrears.

Northern Rock's 125% mortgages came under scrutiny

They came under particular scrutiny over claims that the lender was "aggressive" in its repossessions policy.

This claim was strenuously denied by chief executive Gary Hoffman, although he warned that rising unemployment and falling house prices would increase the numbers in arrears.

Northern Rock's Together mortgages - which offered loans of up to 125% of a property's value - were heavily criticised when the bank was nationalised.

Mr Hoffman said that these worked well in getting first-time buyers on the property ladder during the booming market.

Now, however, the loans made up a third of the mortgage book, but were half of the number of mortgages in arrears and three-quarters of all repossessions by the Rock.

People struggling to repay these mortgages, because they are often less well-off, was the reason for Northern Rock's repossession rate being above the national average.

Latest figures showed the proportion of Together mortgage customers in arrears for more than three months stood at 3.1%. At the same time, the industry average was 1.33%.

Mr Hoffman said he wanted the bank to lead the way in creating schemes to help people avoid repossessions, but they had to act in the same way as the rest of the industry.

"We want to make sure customers stay in their home. Repossession is a last resort," he said.

Executive chairman Ron Sandler said only 1% of the repayment of the debt to the government was funded by repossessions, so there was no benefit in trying to push up the repossession rate for that purpose.

He said there would be no return of the bank to private ownership in the near future, with the economic situation making it more difficult.