It is well documented that the buy-to-let sector is in uncharted territory as far as regulatory and government intervention are concerned.
Buy-to-let has been one of the most talked-about areas of the market since the Chancellor announced the gradual reduction of interest rate tax relief for landlords from April 2017.
George Osborne’s intentions are clear: to free up housing stock for owner-occupiers at the expense of landlords.
However, similarly well documented is the Bank of England’s concern about the sector, albeit for different reasons: the risk it could pose to the economy and a potential slackening of underwriting standards.
Last week, Shawbrook Bank chief executive Steve Pateman told the Telegraph he believed some lenders were being reckless with their affordability checks, describing their behaviour as akin to “shutting your eyes and hoping for the best”.
While Pateman did not specifically mention buy-to-let lending, it is likely he was referring to this part of the market.
He said: “When you see people lending high loan-to-values and doing affordability tests on current payment rates, that is just crazy. It is like shutting your eyes and hoping for the best.
“The big challenge for the economy is that, when things normalise – by which I mean normal interest rates and normal inflation – managing the debt burden that the UK currently has will require quite a lot of sensitivity and intelligence.”
Buy-to-let experts have expressed, in confidence, their concerns about some current criteria traits, namely relaxed stress testing and higher LTVs. Clearly, this will have implications for both borrowers and lenders when interest rates start to rise.
The market, in general, has warned against further intervention by policymakers. But the only way this can be achieved is if the buy-to-let sector demonstrates it can act in a way that warrants less scrutiny.
To be very clear, this magazine is not pointing a finger at any single lender or group of lenders – far from it. However, the market must bear in mind that its actions are being scrutinised and that the powers that be will not need much of an excuse to take further action.