There are many reasons for the recent clampdown on buy-to-let. The Government is keen to free up stock for first-time buyers, although the Bank of England – or, more specifically, the Bank’s Financial Policy Committee – is concerned that the sector could be a threat to the UK’s economy.
The FPC fears that landlords would sell off their properties en masse in a downturn, thereby amplifying a potential fall in house prices.
Moreover, the Bank is concerned about the effects of a rate rise on landlords’ ability to repay their loans, many of which are on an interest-only basis.
However, the industry has been quick to counter these concerns.
Regarding a mass sell-off, economists argue that landlords generally invest for the medium term, meaning there is little risk of them flooding the market at the first sight of a downturn.
There is also little evidence to suggest landlords would be troubled by a rate rise. In fact, while this would not be welcome news for tenants, an easy way for landlords to counter increasing costs is to push up rents.
Clearly, policymakers are concerned about the levels of buy-to-let lending. But the Council of Mortgage Lenders’ latest figures show lending declined between November and December – albeit it was up 30 per cent year-on-year – and the trade body forecasts a lending drop-off after the new stamp duty rates come into effect.
But with just over £37.9bn lent last year, the sector is still some way off its peak of £44.6bn in 2007.
As Paragon’s John Heron put it last week: “Despite claims of over-heating, effectively the sector is still recovering from the financial crisis and, if we could draw the attention of the Government and policymakers to any one argument, this would be it.”
Moreover, as David Whittaker of Mortgages for Business points out, around 52 per cent of buy-to-let activity in December was refinancing of existing debt. Why is this significant? It means less than half of all buy-to-let lending is funding the purchase of homes that could otherwise have housed owner-occupiers.
Intervention is clearly reshaping the sector, with criteria shifting and transactions temporarily boosted because of a rush to beat the stamp duty deadline. However, should volumes decrease later in the year as expected by the CML, policymakers may deem further intervention unnecessary.