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Bank Of England Set For New Buy-To-Let Powers - Has buy to let become unprofitable



British banks will find out on Tuesday if the Bank of England wants them to start building up extra capital buffers to guard against looser lending standards and prepare for this year's test of their crisis resilience.


Barclays, HSBC, Royal Bank of Scotland and Lloyds Banking Group are some of the lenders subject to the BoE's 'stress tests', which in previous years have assessed if they could cope with a house price crash or an emerging market slump.


These banks and other lenders may also have to set aside more funds if the central bank decides the time is right to raise the cyclical element of its capital framework, which rises and falls as the risk of imprudent lending changes over the course of a business cycle.


Members of the central bank's Financial Policy Committee, who met this week, were split in December on whether it was time to raise the new counter-cyclical capital buffer banks must hold to 1 percent - its neutral level - from zero.


Even if the buffer does rise, the immediate impact on how much extra capital banks have to hold is likely to be small, as most already hold more than the minimum amount of core capital.



This new buffer sits on top of the minimum and is built up in good times to stop credit supply becoming too frothy, and tapped when the economy weakens and some loans turn sour.


The FPC will announce its capital decision and the stress tests at 1000 GMT on Tuesday, in what is their last scheduled policy statement before Britain votes on June 23 on whether to leave the European Union.


Economists say a departure would trigger shocks in markets.


BoE policymakers from Governor Mark Carney to director of financial stability strategy Alex Brazier say the "job's almost done" in building capital levels, with banks within a "hair's breadth" of the right amount.


The annual stress test is also moving from financial crisis era fire-fighting to becoming a tool to make sure banks have a sustainable business model and no weak points.



One area of concern for the FPC is Britain's property investment market, and on Tuesday it is due to publish a report into buy-to-let mortgage underwriting standards.

UK Property Markets Bank Of England Financial Stability Annual Report December 2015

Britain's finance minister George Osborne told parliament on Thursday he was highly likely to give the FPC powers to intervene directly on buy-to-let, possibly as soon as this year, and the FPC could recommend banks take action sooner.

Figures on Thursday showed that banks approved more buy-to-let mortgages in February as landlords sought to complete purchases before April, when stamp duty on such purchases increases.


The Bank of England seems set to be given greater powers over the buy-to-let market, after the Chancellor expressed concern about the housing "bubble".



Sir Jon Cunliffe Bank of England Deputy Radio 5 live buy-to-let property action may be needed 


A consultation was launched late last year after the Financial Policy Committee, which is part of the Bank of England, recommended it should be granted the power to direct regulators to require lenders to restrict buy-to-let loans.


Their powers included allowing the FPC to cap the maximum loan-to-value ratio (the size of the loan relative to the value of the property), as well as the costs of debt servicing relative to rents.



buy-to-let Millionaires Judith & Fergus Wilson sell remaining property portfolio for £250 m 


The FPC, whose role is to identify and head-off possible risks to the financial system, has had similar powers over residential mortgages since April last year.


Autumn Statement: Buy-to-let homes face higher stamp duty


George Osborne told the Treasury Select Committee on Thursday that it was "highly likely" the FPC would be given the powers over the buy-to-let mortgage market "later this year".


Dame Nemat Shafik BoE dep Gov Raising interest rates won't help housing market
He said: "The Bank of England and the Financial Policy Committee have identified potential systemic risks in the large increase in the buy-to-let market.



Osborne says tougher buy-to-let regulation on its way
"The measures I have taken in the last couple of fiscal events - on additional stamp duty, on changes to mortgage interest relief - have been done in the knowledge the Bank of England has concerns about a bubble emerging in this market.

"It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year."

The Chancellor used the Budget to impose a 3% hike in stamp duty on additional properties, with moves also announced to curb tax relief on buy-to-let mortgage interest.
The news came as the British Bankers' Association reported that £13.2bn of mortgage borrowing was approved in February - lower than in January but 33% higher than at the same time last year.
The number of mortgage approvals in February was also 26% higher than a year ago.

The BBA's chief economist Richard Woolhouse said: "It appears that borrowers are continuing to try to get ahead of the increases in stamp duty for buy-to-let and second home buyers scheduled to come into effect next month."

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