Bank of England given tough new buy-to-let powers

Bank of England given tough new buy-to-let powers

The Bank of England’s financial policy committee will be granted new powers over the buy-to-let sector from early next year to help it protect the financial system.

The FPC will be able to require regulated lenders to place limits on buy-to-let mortgage lending.

These limits will apply to loan-to-value ratios and interest coverage ratios.

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Chancellor of the Exchequer Philip Hammond said: “It is crucial that Britain’s independent regulators have the tools they need to keep our financial system as safe as possible.

“Expanding the number of tools at the Financial Policy Committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.”

Last year the Bank of England warned about the impact of buy-to-let on the stability of the British economy, with loose lending standards possibly contributing to house price increases and household indebtedness.

Meanwhile in a downturn investors selling their properties into an illiquid market could amplify falls in house prices.

The government granted the FPC powers over the residential mortgage lending market in April 2015.

These allow the FPC to place limits on loan-to-value and debt-to-income ratios.

In September FTAdviser reported that increasing numbers of lenders are demanding interest coverage ratios of 145 per cent, up from the 125 per cent many used to ask for.

This move by lenders has reportedly been prompted by former chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest to the basic rate.