Will the Bank of England clamp down on BTL lending?

Fears that buy-to-let investors may soon be denied access to larger loans have been addressed by the Bank of England.

It confirmed that there is currently “no immediate case for action in the buy-to-let mortgage market”.

It follows concerns the Bank of England would apply tough new lending criteria in the buy-to-let sector – something it has already done in the residential sector.

The governor of the Bank of England Mark Carney applied a maximum income multiple of 4.5 times income on the majority of loans approved for those buying their own home. The move was aimed at ensuring borrowers do not overstretch themselves financially and can continue to afford to live in the properties they’ve bought.

The growth in the buy-to-let sector prompted concerns that the Bank of England would expand its influence, affecting the loans taken out by landlords.

In its latest Financial Policy Committee statement, the Bank of England said: “Buy-to-let mortgage lending has the potential to amplify the housing and credit cycles.”

It admitted that the extent of the so-called amplification is hard to judge as the market has only recently grown significantly.

A variety of factors – including rising house prices and a loosening of pension rules that enable people to invest more of their retirement funds into property – mean buy-to-let has become extremely popular in recent years.

In fact, figures published by the Bank of England suggest that the outstanding stock of buy-to-let mortgage lending has increased by more than 40 per cent since the height of the credit crisis in 2008.

The bank’s FPC statement went on to suggest: “Any increase in buy-to-let activity…could add further pressure to house prices. This could prompt owner-occupier buyers to take on even larger loans, thereby increasing overall risks to financial stability.”

The bank believes that the changes to mortgage interest tax relief, announced in the July Budget, are likely to discourage some investors to take out bigger loans. And it reported that there has been no significant drop in the lending criteria applied by banks on buy-to-let loans. Less than 12 per cent of buy-to-let lending in the three months from April to June this year involved a deposit of less than 25 per cent, compared to almost 40 per cent of residential lending.

As such, the FPC judges said no immediate action is required.

This comes as a huge relief to landlords who are facing increasing pressure from various sides – from a clamp down on tax reliefs to further rules governing their relationships with tenants.

Landlords are not, however, totally out of the woods yet as it appears that the situation will continue to be monitored, with the terms and conditions on buy-to-let mortgage lending remaining under the spotlight.

The bank said: “The Committee considered the rapid growth rate of buy-to-let mortgage lending. It does not consider action to be warranted at present but will monitor underwriting standards and other conditions closely.”



Photo: ‘The Bank of England’ by Captain Roger Fenton 1860