‘Beware a buy-to-let bust', warns the Bank of England

Financial stability in the UK could be being put at risk by the booming buy-to-let market, the Bank of England has warned.

A risky mix of rising property prices and increased buy-to-let mortgage lending may have an impact on wider financial security.

The risks

Since the 2008 financial crisis, buy-to-let mortgage lending has increased by a staggering 40 per cent – even more incredible given that in the same time owner-occupied mortgage lending rose by just two per cent.

And in the face of rising property prices, the Financial Policy Committee (FPC) have declared landlords more sensitive to booms and busts due to their tendency to sell properties quickly as prices decrease, and buy swiftly as prices rise.

These tendencies inevitably increase pressure on rising house prices, while having the added - and more severe - affect of compounding a downturn.

Stricter regulations needed?

Despite the introduction of strict new rules last summer around residential mortgages, buy-to-let mortgages - which make up around one sixth of the market - are yet to be affected by them.

The FPC stipulated to the banks that no more than 15 per cent of residential mortgages are allowed to be given to those borrowing more than four and a half times their income.

Governor of the FPC, Mark Carney, is in talks with Chancellor George Osborne about giving banks more power to police the buy-to-let market and a decision is said to be ‘imminent’.

Avoiding another disaster

The Bank of England assessment into the housing market is playing a “crucial role in protecting our hard-won economic security,” said the Treasury.

“Building a stronger and safer financial system is a key part of the government’s long term plan to provide economic security for working people, which is why the independent Bank of England has been put back at the centre of ensuring emerging risks to financial stability are identified, monitored and effectively addressed,” read a statement.

Should buy-to-let mortgages be subject to stricter regulations, it would echo much of what was announced in the Summer Budget, as the Conservative Party look to stabilise the housing market.

Should the buy-to-let mortgage regulations be stricter? Or will it unfairly punish landlords? Let us know in the comment below!

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