New proposals to curtail mortgage borrowing in the buy to let sector have been branded as “a classic case of slamming the stable door after the horse has bolted” by a leading estate agent and former chairman of the Royal Institution of Chartered Surveyors.
“The changes the Chancellor has [already] made to mortgage interest tax relief and higher stamp duty for landlords will have enough of an impact on buy to let without the need for further interference from the Bank of England. Landlords will already be put off investing further unless the numbers add up and this is a case of kicking them when they are down” says Jeremy Leaf.
The Bank of England’s Prudential Regulation Authority says individual lenders should increase ‘stress tests’ on borrowers who would then have to prove they could cover interest payments in a worst case scenario of interest rates rising to 5.5 per cent for a full five years.
“The Bank of England should have waited to see what impact the changes that have already been made have on the market before making further tweaks. The impact of all these measures will be to cut supply and increase the upward pressure on rents. A number of landlords will already have been tempted to sell before this latest round of proposed changes to the sector” suggests Leaf.
The PRA says that its proposal, if ratified by the full BoE in the summer, could lead to a reduction in buy to let approvals by as much as 20 per cent by 2019; without such constraints, the authority says lenders anticipated a gross increase of 20 per cent in buy to let borrowing in the same period.
The PRA says it has looked at the major 31 lenders in the industry, which represent 90 per cent of buy to let lending in the UK.
Some three quarters of them already meet its new standards, the authority says, but five of the 20 biggest lenders currently use a ‘stressed interest rate’ of 5.47 per cent or lower - that’s below the new level set by the authority.
Concerns over buy to let lending are also highlighted by the Bank of England’s Financial Policy Committee in its latest set of minutes, which include the statement: "The macroprudential risks centre on the possibility that buy-to-let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress."
The Residential Landlords’ Association has branded the proposed measures as “premature.”