Britain’s thriving buy-to-let sector could be thwarted if plans to regulate mortgages in the lending market put forward by the Chancellor are upheld.
The sector has been surprised by Mr Osborne’s announcement during the Treasury Committee hearing that he has already granted the Bank of England additional powers to regulate the buy-to-let market.
Changes
Chancellor Osborne has previously said that he would seek consultation after Bank Governor Mark Carney said that the buy-to-let sector could be a threat to the UK’s economic recovery.
However, it now seems that the Bank can regulate the sector anyway, should it see fit. The Bank already has the power to regulate the rest of the residential mortgage market, in a move designed to stop the housing sector from suffering due to demand pushing prices even higher.
Now, banks must make sure that no more than 15% of residential mortgages are allocated to people borrowing more than 4.5 times their income. In addition, they are required to ensure borrowers are in a position to repay their loans when interest rates eventually rise.
It was thought however that these rules do not currently apply to buy to let mortgages that account for around one sixth of the home lending market. Mr Osborne confirmed that he took Carney’s views on the buy-to-let market, ‘very seriously.’
Tools
‘We have given the FPC powerful tools to, for example, tighten mortgage standards if they feel there’s a credit bubble developing. The Governor of the Bank and the FPC have asked for additional powers over buy to let mortgages which weren’t included and we have granted those powers so they have that tool as well,’ Osborne told the committee.[1]
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), expressed his disappointment that the promised consultation doesn’t seem to be happening.
Williams said that, ‘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.’ He feels that the Chancellor’s address to the Treasury Select Committee suggests, ‘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.’[1]
‘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,’ he added.[1]
Take action
Mr Williams also noted that the FPC itself recently adjudged there to be, ‘no immediate cause to take action in the buy-to-let market. He stated, ‘clearly, there is a distinction between having powers and using them, but creating an evidence base to inform future FPC decisions is important and this process should continue.’ Continuing, Williams said, ‘we must also hope the potential bias towards action does not exclude a sober appraisal of the facts even though the Chancellor seems to have jumped that hurdle.’[1]
‘The rental sector is becoming increasingly important to the UK housing market and many people are staying in rented accommodation for much longer than we have seen historically,’ said Steve Griffiths, head of sales and distribution at Kensington Mortgages .The quality and variety of such accommodation has improved significantly following the growth of buy to let, and it is vital that these standards are maintained in the future. It would be short sighted to limit landlords’ ability to deliver quality rented accommodation when many people rely on this sector,’ Williams concluded.[1]
[1] http://www.propertywire.com/news/europe/uk-buy-let-market-2015102611130.html