With buy-to-let investment continuing to move at a steady pace, despite the Government’s moves to cool interest, the Bank of England’s deputy governor has moved to express his concerns.
Low-cost, interest only mortgages and substantial rental yields continue to drive momentum for investors. However, Sir Jon Cunliffe is worried about the pace at which the sector is growing.
Concern
The deputy governor also said he was concerned about mortgage lenders over-exposing themselves to buy-to-let, lending money more freely as a result.
Since 2008, buy-to-let lending has increased by an average of 6%. Cunliffe pointed out that buy-to-let lending to landlords now makes up more than 15% of all mortgages, up from 8.5% in 2007.
As mortgage lending in the sector grows, Cunliffe feels it is important to look carefully at whether lenders’ underwriting procedures are falling.
He observed, ‘at around the start of 2016, lenders were planning to grow their gross buy-to-let lending by, on average, almost 20% per annum over the next two years, with some challenging banks and smaller building societies planning to grow their buy-to-let books at a much faster rate.’[1]
‘When some form of credit is growing fast one needs to look very carefully at whether lenders’ underwriting standards are slipping,’ he added.[1]
Deputy BoE governor concerned over BTL lending
Tighter
In March, the Bank of England announced plans to introduce more tighter checks on buy-to-let lenders. The Bank’s Prudential Regulation Authority (PRA) said that it was announcing the moves to stop banks from making risky loans. It warned that 20% of lenders were guilty of not making sufficient credit checks.
Its main concern was that a housing bubble could be created, which in turn would cause a wider housing market slowdown. Over 1.7million properties now have buy-to-let mortgages, representing 17% of loans used to purchase property in the last year.
[1] https://www.landlordtoday.co.uk/breaking-news/2016/5/major-concern-over-surge-in-buy-to-let-mortgages