Landlords fear they could face another round of restrictions and costs in 2017 as the Bank of England launches a review of the sector.
The market has slowed down sharply this year but the Bank of England still ruled out loosening restrictions in the sector, leading to worries that it could use a new set of powers to crack down further.
“Given the risk outlook, it was not the time to loosen standards and expose the economy to a potential amplification by households of shocks to economic activity,” said the Bank of England in the record of its latest Financial Policy Committee meeting.
“[The FPC] agreed to conduct a broader review in 2017 of its overall strategy for setting policy measures to guard against risks stemming from the owner-occupier and buy-to-let (BTL) mortgage markets.”
The Bank is getting the power to restrict the loans banks can give relative to the value of the property and the income of the landlord, similar to the powers it has in the owner-occupied sector.
Prices and sales were booming until a raft of new regulations hit buy to let property investors, as stamp duty increased in April 2016 and the Bank of England’s Prudential Regulation Authority (PRA) told banks to tighten up affordability criteria on loans in 2017.
Changes to the treatment of mortgage interest costs will also push up tax bills from 2017.
But the Bank of England is getting more new powers to regulate lending in the industry, and the sector hopes the slowdown to date will be enough to convince officials not to use those new measures.
“We don’t feel there is any need for further interference or sanctions in the BTL market, even before the PRA changes come in in 2017, the market has already felt the impact, and there is more to come,” said Jeremy Duncombe from mortgage brokerage the L&G Mortgage Club.
“Purchase business in BTL is down significantly, and the business that is driving lending currently is remortgages which don’t affect the market. We wouldn’t want to see further involvement in changes in the market.”
Ed Stansfield, chief property economist at Capital Economics, believes regulators are wrong to worry that property investors will flee the market in a downturn, potentially making any fall in prices worse.
“Their fear is that BTL owners are somehow less invested in the market than a homeowner, and if things go wrong they are more like to cut their losses, flooding the market with properties which would drive down prices and cause problems in the banking sector,” said Mr Stansfied.
“While you can see the intuitive logic, all the evidence flies in the face of that – the lending stock of BTL mortgages continued to rise through the depths of the financial crisis.”
He argues that in a strong housing market landlords benefit from rising prices, and in a flat economy the asset still generates a rental income and so remains useful to the investors.
Meanwhile owner occupiers have already adapted to tighter lending rules.
The Bank of England has limited the proportion of loans any one bank can give out at more than 4.5-times a buyer’s income – leading to a surge in those borrowing just below that level.