The Council of Mortgage Lenders is calling for more considered buy-to-let regulation after several examples of Government meddling in the market.
A CML response to a Treasury consultation on giving the Financial Policy Committee more power over buy-to-let urges caution over making changes until it is clear what effect the cut to tax relief and increase stamp duty rates have on the sector.
The trade body is warning over “the cumulative effects of intervention in the market, given that landlords have yet to absorb the effects of a series of tax changes that are likely to have significant implications for the private rented sector”.
The Treasury consultation has mooted giving the FPC powers over LTV caps and rental cover ratios.
The CML response says: “In recognising the over-riding need for the FPC to have at its disposal all necessary macro-prudential tools, our submission argues that any decision to apply them is a much bigger step.
“We believe that they should only ever be used with great sensitivity, and preferably only after consultation and the publication of analysis and assessment of the likely effects.”
The CML also argues against claims that the buy-to-let sector could amplify a future market downturn.
It says: “On one hand, borrowers do draw on growing income and housing equity to fund further borrowing, usually on an interest-only basis. But on the other, they tend to be long-term property investors. And there are other forces on the market which are counter-cyclical, with demand from tenants increasing when the housing market turns down.”
The CML says that data is patchy on buy-to-let mortgages before the financial crash.
It adds: “What we do know, however, is that the sharp contraction in buy-to-let activity as a result of the financial crisis was primarily driven by the collapse of the global securitisation markets upon which many buy-to-let lenders then relied. This pattern is unlikely to be repeated now that lenders have more varied, stable and reliable funding options.”
The CML response also says that any extra rules around minimum interest cover should consider the impact of void periods, the cost of maintaining the property and whether any limit should apply before or after tax.
The trade body says: “Lenders do not dispute the need for robust macro-prudential regulation of the buy-to-let sector, but it is crucial that regulators have the right powers – and that they use them in the right ways.”