The British government could hand the Bank of England stronger powers to regulate the buy-to-let market.
The Treasury announced today that it is launching a consultation on whether the Bank of England should have more power to rein in the UK’s growing buy-to-let sector.
It has suggested that the Bank could be given the power to place limits on the amount banks and building societies lend to landlords to help guard against any future potential risks to the economy.
In September last year, the Bank’s Financial Policy Committee said it wanted to be given powers to direct regulators to require lenders to place limits on loan-to-values and interest coverage ratios.
The FPC introduced regulations last year to cap riskier mortgage lending to make sure the market did not overheat.
Banks and building societies must now ensure they do not lend more than 15% of residential mortgages at more than 4.5 times a borrower’s income.
The Treasury said in a statement: “The government is aware of the difference between buy-to-let lending and owner-occupier lending and wants to ensure that any action taken in the buy-to-let market is proportionate, does not place excessive costs on business, and does not unduly restrict business activity.”
The Bank has said the buy-to-let market was a potential threat to the UK’s economic recovery and that borrowers could be exposed following a downturn, which could hit the wider housing market and economy.
Osborne said ensuring that UK financial services sector was resilient enough to withstand future shocks was a key part of the government’s economic plan.
He said: “That is why the government has radically reformed Britain’s supervisory landscape, putting the Bank of England back at its heart. And it is why we created the Financial Policy Committee with a clear remit to identify and address potential financial stability risks.
“Today’s consultation is the next step in ensuring that the FPC has the tools it needs to protect our economy.”
Osborne announced a new 3% stamp duty rate on second homes in the Autumn Statement as part of the government’s plan to dampen the buy-to-let market. The amount of tax relief landlords can claim on properties will also fall from April 2017.
Paul Smee, director general of the Council of Mortgage Lenders, said: “In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated. We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”
