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 following the publication in July of the BoE’s financial stability report, which 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 BoE’s requests for more powers in this market, as they have over 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 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 BoE’s financial policy committee (FPC) 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.”
BoE governor Mark Carney has suggested interest rates could begin to rise at the turn of the year.
Adviser view
Kevin Hever, an adviser with West Midlands-based Cornerstone Financial, said: “It seems to me that it would be better to delay doing anything until he knows the effects of the changes he is making to the taxation of buy-to-let mortgages, because we don’t know if their appeal is going to be reduced.”
