The Telegraph has reported that the Bank of England will be issued with more powers over the market next year, meaning that landlords could be faced with extra restrictions on lending. The Treasury launched a consultation on imparting to the Bank of England the capacity to limit the proportion of high loan-to-value mortgages handed out in the buy-to-let sector. The article goes on to say that officials could also cut the number of loans given to landlords, who expect the rental income will only just cover their mortgage repayments.
Mark Carney, the governor at the Bank of England, has suggested that the buy-to-let sector could be a source of risk to the financial sector. Buy-to-let has already been dealt heavy blows in stamp duty rises and license fees that landlords have to pay on their properties, leaving most landlords severely priced out in a deteriorating housing crisis. The governor went on to mention that landlords may be more likely and able to sell up whenever interest rates rise or house prices dip, triggering a cycle of decreasing prices, which will hurt other home-owners and banks. Mortgages attached to properties from the buy-to-let sector have driven much of the increase in loans this year. The consultation launched by the Treasury will run until March next year, and it is expected to lead to the powers being passed on to the Bank of England in the middles of 2016.
The Chancellor George Osborne has said in a statement that ”ensuring that Britain’s financial services sector is resilient enough to withstand future shocks is a key part of the government’s economic plan.” He continues: ”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.” The government’s focus on the housing crisis has been to try and rectify all the issues caused by Labour’s mistakes, but it is unclear if the Conservatives will be able to make a lasting positive change.
The governor of the Bank of England has promised to wait until the policies have been brought in before he metes out his own measures to limit lending, but banks have argued that buy-to-let loans are not dangerous and do not threaten financial stability.
We will have to wait until next year to see if this could be the final nail in the coffin for the buy-to-let sector, or these changes may not be as bad as we think, and may be able to allow the already drowning sector to finally keep its head above water.