This builds on the reforms already made to the financial supervisory regime since 2010, including putting the Bank of England back at its centre and creating the Financial Policy Committee within it.
In September 2014, the FPC recommended that it be given additional powers of direction over both the residential mortgage lending market and the buy-to-let mortgage market.
These would form part of its macroprudential toolkit – the tools it has at its disposal to head off potential threats to financial stability should they arise.
In April 2015, the government granted the FPC powers over the residential mortgage lending market and promised to consult on buy-to-let powers by the end of this year.
This consultation, which includes draft legislation and a full impact assessment, fulfils that commitment.
The government stated that it is aware of the difference between buy-to-let lending and owner-occupier lending and wants to ensure that any action taken in the buy-to-let market is proportionate, does not place excessive costs on business and does not unduly restrict activity.
The FPC recommended it be granted the power, if necessary to protect and enhance financial stability, to direct the Prudential Regulation Authority and Financial Conduct Authority to require regulated lenders to place limits on buy-to-let mortgage lending by reference to loan-to-value ratios and interest coverage ratios.
Responses are requested by 11 March 2016.
Chancellor George Osborne commented ensuring that Britain’s financial services sector is resilient enough to withstand future shocks is a key part of the government’s economic plan.
“That is why we created the Financial Policy Committee with a clear remit to identify and address potential financial stability risks. Today’s consultation is the next step in ensuring that the FPC has the tools it needs to protect our economy.”
The Council of Mortgage Lenders’ director general Paul Smee said he understood the rationale for putting the macroprudential tools at the Bank of England’s disposal, but also recognised 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.”