Consultation launched into a Bank of England clamp down on BTL lending

Fears of a clampdown in buy-to-let mortgages moved a step closer to reality last month after the Chancellor announced a consultation to give the Bank of England more powers.

Many experts believe the changes are now a done deal and that George Osborne is simply going through the motions to impose the type of restrictions he has already allowed the Bank to apply in residential lending.

As little as a few months ago, it was hoped the Chancellor would not follow this course of action. But concerns about the growth in the buy-to-let market means that as early as next year, there may be new limits on the amount investors can borrow as a proportion of the property price as well as an increase in the required ratio of expected rental income to mortgage interest payments.

The Bank of England’s governor Mark Carney this week confirmed that the Bank of England would be taking action, saying: “There are a number of things happening…we are watching it closely and we will take action.”

Lending to landlords has increased on average by 5.9 per cent since the credit crisis, compared to only 0.3 per cent growth in the residential market. In the past year, it has grown by 10 per cent.

It is a fresh blow to landlords who have hit with a series of policy changes during the past year that will affect their profits.

These include a reduction in the tax relief that landlords can claim on their income to the basic rate of tax – a change that will be phased in over four years.

This was quickly followed up last November with the announcement by the Chancellor in the Autumn Statement that buy-to-let landlords will face a higher rate of stamp duty. It is a surcharge that equates to three per cent, which will be introduced in the new tax year.

It came after the Bank’s Financial Policy Committee warned about the risks of buy-to-let on the wider economy, saying: “Strong growth in the buy-to-let lending, and the potential for underwriting standards to slip, may have implications for financial stability.”

Speaking about the launch of the consultation, George Osborne said last month: “Ensuring that Britain’s financial services sector is resilient enough to withstand future shocks is a key part of the government’s economic plan. 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.”