Will George Osborne’s mortgage cap hit buy-to-let lenders?

In his Mansion House speech, George Osborne announced plans to limit the size of mortgage loans, in an attempt to cool down the surge in house prices. Why has he chosen to do this, and what could this mean for the buy to let market?

This initiative has come amid concerns from politicians both at home and abroad, regarding the rising prices in the UK housing market. Mark Carney, the Governor of Bank of England believes that the increasing number of high-risk mortgages will cause a future crisis in the housing market.

As a response, the Chancellor stated that the Bank of England will be given some powers to regulate the mortgage sector, such as the ability to prevent mortgage lenders from offering high loan-to-value mortgages for new buyers. Additionally, George Osborne stated that the planning system will be modified, with the aim of building a further 200,000 homes. Councils will be obliged to set up pre-approved planning permissions in areas which they consider suitable for extra housing. The government expects that by 2020 over 90% of free space will be covered with new properties to increase availability and to decrease the sale prices which have risen by more than 10% in the last year.

The Chancellor’s initiative, coupled with new mortgage regulations will make it harder for the less well-off to access the property ladder. Although it will decrease the potential for a housing crisis, it will have to be paired with a scheme to help people buy property. If not, it could prevent a wide section of society from getting on the property ladder.

In the short term, a further increase in difficulty in obtaining a mortgage will drive demand for rental properties which can only be of benefit for landlords. However, if the Chancellor’s aim of slowing house price increases until salaries can catch up is obtained, then the increasing affordability of mortgages will take some tenants out of the rental market.  Landlords relying on buy-to-let mortgages may also find it harder to get new ones or re-mortgage existing properties under these proposals, not ideal when interest rates are widely expected to rise.


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