The Bank of England has said that if the booming buy-to-let sector threatens Britain’s financial stability it “stands ready to take action if necessary”.
Experts widely believed that the Bank of England’s Financial Policy Committee (FPC) could unveil measures to curb the buy-to-let market this week as part of a clampdown on risky lending.
Announcing the results of its annual stress tests of the seven biggest lenders, the Bank said it would monitor developments in buy-to-let activity but did not announce any new measures to curb mortgage approvals.
“The FPC remains alert to financial stability risks arising from rapid growth in buy-to-let lending and will monitor developments in buy-to-let activity closely following the tax changes to the buy-to-let market announced by the Chancellor in the Budget and Autumn Statement,” the Bank said.
The Bank noted that buy-to-let investors were subject to less stringent affordability tests than loans to owner-occupiers and potentially more vulnerable to an unexpected rise in interest rates or a fall in income.
The BoE said that Britain’s banks could be forced to find as much £10 billion in capital to act as a buffer in the event of an economic downturn.
Barclays, Lloyds Banking Group, Santander UK, Nationwide and HSBC all passed the stress tests and were judged to have adequate capital positions.
However, Royal Bank of Scotland and Standard Chartered were found to be the weakest of the seven banks and were both flagged for capital inadequacies.
The Bank has previously expressed fears that the buy-to-let market was a potential threat to the UK’s economic recovery.
There have been concerns that buy-to-let borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
The attack on buy-to-let began in July when Osborne announced plans to limit tax exemptions for landlords in the Summer Budget to the basic rate of tax, which is 20%.
Then in his Autumn Statement last week, Osborne said that as of 1 April next year, people purchasing buy-to-let properties and second homes will pay an extra 3% in stamp duty.
The buy-to-let mortgage market has continued to grow rapidly since the end of 2013, with lending increasing by 10% in the last nine months.
Osborne said in a surprise announcement in October that the BoE would be granted new powers to regulate buy-to-let mortgages.
The BoE previously asked for additional powers to cap the size of landlords’ mortgages as a multiple of their expected rental income in 2014.
The FPC introduced regulations last year to cap riskier mortgage lending to make sure the market did not overheat.
Banks must now ensure they do not lend more than 15% of residential mortgages at more than 4.5 times a borrower’s income.
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I cannot understand the Government and their thinking on buy to rent. Most of the people who invest are smaller landlords who are trying to arrange another source of income at retirement. They do not make hardly any profit in the short term but hope that prices will rise and then a property can be sold to reduce the borrowing and a profit could then be achieved on the remaining units. All this rubbish about buy to rent overheating the market is a ploy by the Bank of England to restrict funds. In the short term there will be an even lower number of properties to rent as people will leave the market and invest in the stock market where there is less work. Still capital appreciation be it slightly less than property but no worries and no unpaid rent or repair problems. I think the Bank is still a puppet of the government and they have been told to issure the statement. This country continues to ‘knock’ the self employed who were at one time the backbone of the economy. My father always said ‘go out and get a good job with a pension’. I now believe him!