Bank of England announces plans to restrict buy-to-let mortgages
Over recent months, the government has taken steps to try and cool the booming buy-to-let mortgage market. Changes to stamp duty and tax arrangements for landlords come into force this year but now the Bank of England has announced further plans to clamp down on buy-to-let mortgages.
Under the new proposals, borrowers looking to take out a buy-to-let loan will face additional questions and tougher underwriting.
Bank of England attempting to reduce buy-to-let lending by 10-20% by 2018
The Bank of England has announced a series of measures designed to restrict the availability of buy-to-let mortgages in order to tackle what it believes is a major threat to the UK's “financial stability”.
In a statement, the FPC said that it “remains alert to potential threats to financial stability from rapid growth in buy-to-let mortgage lending”, noting that the outstanding stock of buy-to-let mortgages rose by 11.5% in 2015 alone.
The Bank predicts that the new proposals will reduce the number of new buy-to-let mortgages by between 10% and 20% over the next two to three years. The measures include:
- A consideration of the borrower’s costs associated with letting the property, including tax costs, should be made when making an underwriting decision
- The verification of a borrower’s personal income if the lender wants to include it to support the mortgage
- A special underwriting process for 'portfolio landlords' with four or more properties, resulting in extra scrutiny on income and outgoings
- An assessment of whether borrowers could afford buy-to-let mortgages in the event of future interest rate increases as high as 5.5%
The Bank of England has repeatedly warned that the buy-to-let sector poses a significant risk to the UK economy. Last month, Sir Jon Cunliffe, deputy governor of the Bank of England for financial stability, said there was a risk that if large numbers of buy-to-let landlords were to sell their properties at the same time, there could be a “spiral of house price declines” across the wider housing market.
Chancellor giving the Bank responsibilities to control lending
Last month George Osborne told MPs that it was “highly likely” that he could give the FPC further responsibilities to control buy-to-let lending. The government has already introduced a three% stamp duty surcharge on buy-to-let properties and changed the way rental income is taxed.
The Chancellor told members of the Treasury Select Committee: "The measures I have taken in the last couple of fiscal events – on additional stamp duty, on changes to mortgage interest relief – have been done in the knowledge the Bank of England has concerns about a bubble emerging in this market.
"It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year.”