In the wake of the Autumn Statement and the strongly opposed 3% stamp duty hike on buy-to-let homes announced for April 2016, the Bank of England has moved to express concern about the sector.
The Bank’s Governor, Mark Carney, said he was worried about high levels of lending to landlords and that the Bank was looking to intervene.
Watching
‘There are a number of things happening…we are watching it closely and we will take action,’ Carney told the Financial Times. He went on to say that he was worried that investors could sell their properties at the same time if house prices were to fall.
This is not the first time the Bank has expressed concern over the buy-to-let market. In September, the Bank’s Financial Policy Committee made a warning over the sector. The committee is headed by Mr Carney and said that the expanding market posed a real threat to the UK’s financial stability. The Bank warned, ‘the stock of buy-to-let lending might be disproportionately vulnerable to very large falls in house prices.’[1]
Surge
Higher rates of stamp duty tax come into force at the beginning of the next financial year in April. As a result, there are concerns a buy-to-let rush could materialise with landlords seeking to invest before the changes. This could in turn push property prices up even further.
At present, there are 1.7m buy-to-let mortgages, accounting for around 16% of the value of all outstanding mortgages in total. Every year, in excess of two million individual landlords declare their rental income to HMRC.
Earlier in 2015, Mr Carney said that the Bank was in discussions with Mr Osborne regarding the chance of gaining more powers to regulate the buy-to-let mortgage market.
In addition, the Governor used the Financial Times interview to defend himself over interest rates. On a number of occasions over the last two years, Carney has suggested that the base rate of 0.5% would rise. However, with inflation remaining below the target of 2%, the Monetary Committee has been forced to delay.
Bank of England wants action on BTL sector
No warning
Moving to defend himself, Carney said, ‘did I know that oil was going to fall 12% in the last 10 days? No, I didn’t know that.’ He added that there was no, ’12 months heads-up’ from the Chinese over the devaluation of the yaun. However, Carney insisted that he will, ‘continue to try to frame as accurately as possible what’s guiding my deciding process.’[1]
The UK’s inflation rate turned positive in November for the first time in four months. Despite the US Federal Reserve being expected to raise rates for the first time in ten years, Carney says that Bank of England is in no hurry to follow.
Interest rates have remained constant for the past six and a half years in Britain. An annual survey of finances found that nearly a third of households would have to cut spending, work more or make alterations to their mortgage payments, should rates rise by 2% with no increase in wages.
In conclusion, the Bank’s research found that the Government’s austerity programme, ‘has weighed on household spending and is likely to continue to do so.’[1]
[1] http://www.bbc.co.uk/news/business-35108952