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Soaring BTL ‘may be lenders trying to avoid rules’

Lenders could be piling in to buy-to-let to get around financial stability rules put in place by the Bank of England, according to Capital Economics.

Last October, the Financial Policy Committee – the Bank of England committee tasked with ensuring financial stability – was given the power to control loan-to-income ratios for owner-occupied mortgages, stipulating lenders must limit the volume of loans at or above 4.5 times income to 15 per cent of all new lending.

The FPC hoped the cap would prevent borrowers from becoming over-indebted.

Buy-to-let loans were excluded, although the FPC has asked for powers to control this sector. The Treasury is expected to consult on the issue this year.

While lenders are not aggressively loosening buy-to-let criteria, the sector accounted for 18 per cent of all mortgages in the first quarter of 2015, whereas in recent years it has accounted for between 6 and 13.4 per cent of lending.

Capital Economics property economist Matthew Pointon says: “The record share of mortgage lending going to the non-regulated sector could be a sign that lenders are looking to get around rules designed to bolster financial stability by turning to the buy-to-let sector.

“While there are good reasons for buy-to-let lending to be excluded from policies designed to protect customers, it is less clear why it should be a special case for macroprudential regulation.”

Pointon argues the buy-to-let sector is not immune to interest rate shocks as many loans are interest-only and could therefore pose a threat to financial stability.

He adds: “It would therefore not be a surprise if the FPC’s request for a directive power over interest coverage ratios is eventually granted.”



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