Bank of England warns action may need to be taken in the buy to let property market following a sharpincrease in the number of properties acquired by investors with the intention of renting them out
The Bank of England might take action after a sharp increase in the number of properties acquired by investors with the intention of renting them out, a top policymaker at the central bank said on Wednesday.
"Buy-to-let has grown faster than any other part of the housing market," Sir Jon Cunliffe, a BoE deputy governor, told BBC Radio 5 live interview, on the wake up to money programme.
David Jones Radio 5 Live Interviews Sir Jon Cunliffe Deputy Governor of BoE , on Wake Up to Money
"When you find one sector of the property market growing fast ... then I think you have to ask questions about are there risks here, and you have to monitor those risks and if necessary you have to take action to curtail those risks."
The BoE took no action on the buy-to-let market at the latest meeting of its Financial Policy Committee, the results of which were announced on Tuesday. The FPC has previously said it was monitoring the market.
Cunliffe also told the BBC that the Bank was keeping an eye on growth in lending by banks to consumers but did not think it poses an immediate risk to the economy.
"At the moment, I think it's containable at the level it's growing but it's something you need to watch," he said.
In a separate interview with the Financial Times, Cunliffe reiterated his view that the BoE's next move on interest rates would be an increase. The Bank's chief economist Andy Haldane has said he could not rule out a rate cut because of the risks that a further slowing of the world economy might hurt Britain.
"I think we see signs of pay growth coming back in the economy and we're seeing signs of productivity coming back, but ... I'm data-dependent," he told the FT.
Barclays’ decision to increase its rental cover ratio could see a ripple effect in the buy-to-let market, with other lenders following its lead, according to one mortgage broker.
On Monday [30th November], the bank announced from 7 December, its rental cover ratio will increase from 125 per cent to 135 per cent for all new applications, as it expects landlords to incur higher costs because tax relief cut announced in the Summer Budget.
All existing background buy-to-let and permission-to-let mortgages will continue to be assessed at 125 per cent as part of the overall affordability calculation and the affordability rate will remain at 5.79 per cent.
In July, the chancellor stated tax relief for buy-to-let borrowers would be gradually tapered to the basic rate from April 2017.
A note from Barclays to intermediaries said the increase in rental cover ratio will ensure new customers are protected as they look to invest in buy-to-let over the long term.
Mark Harris, chief executive of mortgage broker SPF Private Clients, said the bank is likely to be the first of many buy-to-let lenders to make this change to their lending criteria.
He said the industry is getting to the stage where buy-to-let is going to become a 50 per cent loan-to-value product in the south-east and London at least, taking the buy-to-let investor into the same space as a seasoned landlord.
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