Chancellor George Osborne has said the Bank of England could be given directional powers over the buy-to-let market this year.
He was speaking after the Bank of England’s financial stability report, which was published earlier this month, stated the UK’s buy-to-let housing market could pose a threat to the economy because of looser lending standards.
Mr Osborne told the Treasury Select Committee that he would be responding to the Bank’s requests for more powers in this market, as they currently have for owner-occupied mortgages.
He said some of the changes introduced in the Budget would address this - including the cut in tax relief private landlords receive on their mortgage interest payments, cutting it from 40 per cent or 45 per cent to 20 per cent by April 2020.
Mr Osborne said: “By reducing the tax relief available we are moving towards levelling the playing field between someone buying a house for their family’s use and someone buying it to let.
“The financial policy committee has identified buy-to-let mortages as something they wanted to have oversight over and make recommendations on.
“I agreed we would pass on oversight and give them powers to look at the buy-to-let market and make recommendations. That is in train.
“We are looking at directional powers as well. We will make an announcement in the next couple of months and it is happening this year.”
The FPC was recently given powers to set limits on loan-to-value and debt-to-income ratios for the first time to protect the UK’s financial system but these only apply to owner-occupied mortgages.
But this month’s financial stability report said: “Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness.
“And in a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages.
“This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs.”
Bank of England governor Mark Carney has suggested interest rates could begin increasing at the turn of the year.
Mr Osborne also responded to concerns about the low-inflation environment the UK is currently in.
He said: “Deflation would be a challenge in any economy but I am confident our monetary policy is robust and can deal with anything thrown at it.
“I don’t think we face that challenge today. The monetary policy has not asked for any tools that it doesn’t have.”
