Could buy-to-let mortgage regulation be around the corner?

Posted 11 November 2015 by Keith Osborne

To date unregulated, there are signs that the Chancellor is keen to put the buy-to-let mortgage market under the control of the Bank of England...

Despite a raft of changes over the last couple of years to the way residential mortgages are underwritten, buy-to-let mortgages remain unregulated. Now, however, the Chancellor has announced that the Bank of England is to be given the power to regulate the buy-to-let mortgage market.

The move by George Osborne has caught the market by surprise as the government has previously agreed to a consultation on the subject.

In 2014, the Bank of England introduced regulations to help control the housing market in the UK. Among the rules, banks are now required to ensure that no more than 15% of residential mortgages are given to people borrowing more than 4.5 times their income while borrowers also have to be able to prove they will be able to afford their mortgage if interest rates rise.

At the time, Bank of England Governor Mark Carney asked for “additional powers” over buy-to-let mortgages, prompting the Treasury to agree to a consultation on the subject.

However, last week George Osborne told the Treasury Select Committee that he had granted powers to the Bank of England to intervene in the buy-to-let mortgage market. The Intermediary Mortgage Lenders Association (IMLA) said that the Chancellor had “jumped the gun” by seemingly skipping the consultation stage.

“It suggests a stage of evidence-led policymaking has been removed, and that the consultation may be limited to what those powers will be when – rather than if – they are granted,” said an IMLA spokesperson. “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.”

How will the Bank of England regulate buy-to-let mortgages?

Despite the Chancellor's announcement there have been no details about what the scope of the Bank of England's intervention may be.

In September, the Bank of England raised concerns that buy-to-let mortgage lending had the potential to 'amplify' a housing boom and bust. As well as concerns that easy access to buy-to-let mortgages could push up house prices, a fall in property values could lead to a widespread sell-off of rental property, leading to larger falls in prices.

One possible option would be to cap the size of a buy-to-let mortgage as a multiple of the anticipated rental income, something the Bank of England asked for in 2014. The Bank may also want to take the landlord's income into account when agreeing a mortgage, rather than just basing the mortgage on rental income.

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