The Chancellor announced late last week during a Treasury Committee hearing that he intended to give the Bank of England (BoE) additional powers to regulate the buy-to-let mortgage market.
While the stock of owner-occupier mortgage lending has risen by just 2 per cent since 2008, buy-to-let mortgage lending has increased by more than 40 per cent over the same period. But growth could come to an end after the Bank, which already has the power to regulate the wider the residential mortgage market, was also given the authority to regulate the buy-to-let sector too, should it wish to do so.
BoE warned last month that Britain’s buy-to-let market poses an increasing threat to financial stability because rising property prices expose vulnerabilities that could magnify a housing market crash.
The Financial Policy Committee, led by Governor Mark Carney, said landlords were more sensitive to booms and busts, often buying property when prices increase but also selling homes swiftly during a downturn.
Peter Williams (left), Executive Director of the Intermediary Mortgage Lenders Association (IMLA), expressed his disappointment that the mortgage industry was not consulted about the move to hand greater powers to BoE.
He said, “The Government stated its intention earlier this year to hold a post-election consultation to assess the evidence for granting powers of direction over buy to let lending to the Financial Policy Committee (FPC). It was therefore very disappointing to hear the Chancellor apparently jump the gun at the Treasury Select Committee.
Williams believes that the Chancellor’s statement to the Treasury Select Committee suggests “a stage of evidence-led policy making has been removed, and that the consultation may be limited to what those powers will be when – rather than if – they are granted.”
He added, “It seems somewhat ironic that this development comes just days after Mark Carney also spoke to the Select Committee about the need for a wider ‘stock take’ of financial regulations. There is a common interest in ensuring we have a stable market for buy-to-let, and we feel this would be aided by an open debate about the case for additional FPC powers based on the strength of evidence.”
The ongoing growth in the buy-to-let market means that buy-to-let lending now makes up 15 per cent of all mortgage debt and 20 per cent of all new mortgage lending underwritten in quarter one of this year. But this should not cause “concern or worry”, according to Martin Wilkinson (right), founder of Buy2Let.com.
He commented, “The (buy-to-let mortgage) loans are far less risky than traditional owner-occupier loans as they are on a far lower average LTV, and typically have at least 125 per cent rent cover on the repayments.”
“The Bank of England’s low interest rates means that average buy-to-let yields easily outstrip net returns from other asset classes such as binds, annuities, and cash at the moment,” he added.