PRA boss warns housing crash would hit retirement savings

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PRA chief executive and incoming FCA boss Andrew Bailey has warned savers investing in property to fund their retirement could be at risk if house prices slump.

Yesterday, the PRA proposed new minimum underwriting standards for the buy-to-let sector, arguing that the market is defined by short-term interest-only mortgages that leave consumers vulnerable to hikes in base rate.

And speaking to the Telegraph, Bailey says while the growth in buy-to-let lending is likely to continue in the face of low interest rates and low annuity rates, a crash in house prices would pose risks for pensioners and savers.

He says: “Looking across the whole landscape I do think this whole question about long-term savings and retirement provision and the role of the housing market is important.

“I’m not surprised at the growth of buy-to-let lending and the rental market. It’s obviously an issue of how long-term saving behaviour translates into asset holding and asset values. The point we are emphasising today is that nobody benefits if one of the outcomes is unsustainable lending practises.”

Bailey adds: “People might form expectations about what the necessary long-term saving to support their retirement will be, which can then [if house prices fall] be transformed quite suddenly in ways that frankly are unwelcome.”