Why new rules for your buy to let mortgage could be in the pipeline, as Bank of England handed new powers by Treasury
The government is to hand the Bank of England’s Financial Policy Committee (FPC) new powers to better regulate the buy to let market.
The new abilities, which are intended to help better protect the financial system from any wobbles in the buy to let market, will allow the FPC to direct the Prudential Regulation Authority and Financial Conduct Authority to place limits on the loan-to-value ratios and interest coverage ratios regulated lenders can apply to the their buy-to-let products.
The powers will apply from early 2017.
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"It is crucial that Britain's independent regulators have the tools they need to keep our financial system as safe as possible," said chancellor Philip Hammond. "Expanding the number of tools at the FPC'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."
Today's announcement comes off the back of a consultation into the issue.
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The Treasury noted that, while it was clear the buy to let market played an important role in the economy and buy-to-let landlords provided valuable accommodation to those who either did not want to or could not afford to purchase their own property, such factors must be balanced with the risks a downturn in the market could pose to overall financial stability.
The buy to let market has undergone a number of changes recently. In particular, since April, those who are purchasing a buy to let property have had to pay a three per cent surcharge on stamp duty land tax.
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"The Council for Mortgage Lenders (CML) recognises the need for robust macro-prudential regulation, but we would urge that the powers should only be applied where the buy to let sector poses a particular risk to economic stability," said a CML spokesperson. "We also believe that there is a need to consider the cumulative effects of a range of measures targeted at the buy to let sector."
Today's move is a long-awaited one; the FPC had approached the government about being granted such powers as far back at 2014, and was given similar powers over the residential market in 2015.