Bank of England to be given new powers in buy-to-let lending
The Bank of England may be given new powers to restrict lending in the buy-to-let market, Mark Carney announced earlier this week.
The announcement comes just 14 months after the Bank were given the ability to limit lenders from issuing any more than 15% of their new residential mortgages to applicants who were borrowing at 4.5 times their salary.
These powers may now move into the buy-to-let sector to limit the borrowing by landlords who buy property to let out.
Speaking last week, Carney said that he was “worried” that if house prices decreased, landlords may begin to sell in large numbers – especially in light of the new Stamp Duty (SDLT) increases.
By limiting the amount that property investors are lent, the effect on the housing market will lessen when landlords do begin to sell.
How will they do this?
The exact criteria is yet to be decided but it may be done by looking at the size of the loan and compare it to the property’s value or by taking whether landlord’s rental income covers their mortgage payments.
The Chancellor, George Osborne, said: "Ensuring that Britain's financial services sector is resilient enough to withstand future shocks is a key part of the government's economic plan."
But isn’t the buy-to-let market going to slow down after the Stamp Duty tax changes?
So the Council of Mortgage Lenders (CML) say.
The additional 3% SDLT announced by the government in the Autumn Statement last month will come into effect in April 2016 and is expected to cause a drop of around 22% in new buy-to-let mortgages.
Buy-to-Let is at an extremely difficult point in its existence, and with these new restrictions, increased SDLT, tax relief to be lowered from 2017 and Capital Gains Tax to be paid sooner than it currently is, it is certain that landlords are at a pivotal point.
Whether the government’s defence of “helping first-time buyers onto the property ladder” has any validity, however, is yet to be seen, and many landlords will take a lot of convincing to accept that they are not being victimised.