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Landlords and Agents Warned that Buy-to-Let Mortgages Could Crash
This article is an external press release originally published on the Landlord News website, which has now been migrated to the Just Landlords blog.
The private rental sector looks set to face further pressure, as the Government reveals that the Bank of England (BoE) will be given extra powers to regulate buy-to-let finance.
This announcement has added to the series of changes that will affect landlords and the lettings industry.
From April, buy-to-let investors and second home buyers will face a further 3% Stamp Duty charge when they purchase a property.
Additionally, the amount of mortgage interest tax relief for landlords will be reduced and those selling up will have to pay capital gains tax (CGT) much sooner than they do at present.
The Treasury has launched its consultation on cracking down on buy-to-let borrowing, which includes draft regulation.
Landlords and Agents Warned that Buy-to-Let Mortgages Could Crash
The BoE’s Financial Policy Committee (FPC) would be given powers to limit what buy-to-let investors can borrow. This could mean lower loan-to-value ratios (LTVs) or a higher ratio of rental income to cover mortgage payments.
Chancellor George Osborne says the consultation “is the next step in ensuring that the FPC has the tools it needs to protect our economy”1.
The Residential Landlords Association (RLA) opposes the plans, stating that making access to buy-to-let lending harder could cut the supply of rental homes.
Chairman of the RLA, Alan Ward, claims: “There is no clear evidence that the property boom is caused by buy-to-let investors, when rising prices are mainly concentrated in London and the South East.
“This is largely fuelled by foreign investors and speculators treating our property as a commodity.
“The RLA supports the principle of the BoE ensuring that lending does not pose a risk to the stability of the financial sector. It is important that lenders do not saddle landlords with debts which they cannot pay back. But landlord investment is essential to the supply of homes to rent.”
He adds: “The overwhelming majority of landlords are responsible borrowers providing homes as a long-term business.”1
The Council of Mortgage Lenders (CML) expects the number of buy-to-let mortgage products to fall by 22% in the next two years.
It has estimated that there were 116,000 new buy-to-let mortgages this year – the highest since 2007. Next year, it predicts that this will drop to 105,000 and to 90,000 in 2017.
The CML’s Paul Smee comments: “We understand the rationale for putting the macroprudential tools at the BoE’s disposal, but also recognise that this does not necessarily mean they will be used.
“In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated.
“We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”1
The consultation follows an interview with the head of the BoE, Mark Carney, who expressed he is “fearful of the risk that investors would all seek to sell at the same time if there were a general decline in house prices”1.
However, the Managing Director of Hunters estate agents, Glynis Frew, has also voiced his concerns. He says: “There have been a number of attacks on landlords recently, including the Autumn Statement’s 3% Stamp Duty announcement.
“Landlords as a whole are being portrayed as greedy investors who are looking to take advantage of tenants. This is simply not the case. The majority of landlords actually own one buy-to-let property and are your typical average Joes.
“It seems strange that no such restriction is in place for those with multiple properties of 15 or more.
“Such financial burdens will inevitably lead to a further rise in rents, as landlords will have to compensate for the extra measures somewhere.”1
The consultation is open until 11st March 2016 and can be found here: https://www.gov.uk/government/news/government-launches-consultation-on-further-housing-market-powers-for-the-bank-of-england
