The Council of Mortgage Lenders has warned policymakers that applying too much control on the buy-to-let market could be “damaging”.
Figures published earlier this month by the Bank of England and FCA show buy-to-let lending grew 18.5 per cent from £7bn in the second quarter of 2014 to £8.3bn in Q2 2015.
As a result of its rapid growth, the buy-to-let sector has come under policymakers’ spotlight.
In July, the BoE warned the buy-to-let market could put the financial stability of the UK at risk due to the relative ease with which borrowers can access credit.
The Treasury will later this year consult over whether to give the FPC the power to contain buy-to-let lending – potentially through limiting LTV or debt-to-income ratios – if the committee deems it necessary. The committee already has the power to cap LTIs and LTVs for owner-occupied lending.
The CML says: “Lenders do, of course, accept that regulatory authorities must have the right tools to address any macro-prudential risks. But we urge the government and other authorities to consider the effects of uncertainty on the market and, in particular, the potential for a series of reforms to have cumulative, unintended and perhaps damaging consequences.”
Macro-prudential interference aside, the sector will also have to deal with the introduction of the Mortgage Credit Directive and the tax changes brought in by the Budget.
From 21 March 2016, so-called ‘consumer buy-to-let’ will be regulated. It has been suggested “accidental landlords” and let-to-buy borrowers will be considered in this category. The Treasury estimates this market to account for around 11 per cent of the overall market.
The CML warns: “It is possible that some lenders, particularly small and medium-sized firms, may be cautious about offering consumer buy-to-let mortgages. One consequence may therefore be that “consumers” wanting to take out buy-to-let loans will have a narrower choice in the market, particularly in the short term.”
As part of the summer Budget, George Osborne declared that the Government will begin tapering down tax relief for buy-to-let borrowers to the basic rate of tax, starting in April 2017.
The CML adds: “The measures are likely to deter some landlords from expanding their portfolios, and may encourage others to reduce their property holdings. They could also lead landlords to seek to increase rents to cover some of their additional tax liabilities. Overall, the extent to which the measures may discourage future growth of buy-to-let and the private rented sector is unclear.”
Buy-to-let lending peaked at £45.7bn in 2007, although lending fell to just £8.6bn two years later. Since then buy-to-let has made a strong recovery, growing by 218 per cent to £27.4bn in the five years to 2014. The sector is expected to reach £30bn this year.