New powers for Bank of England on buy-to-let lending

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The government has announced new buy-to-let powers which it says will help the Bank of England (BoE) to enhance financial stability.

HM Treasury and The Rt Hon Philip Hammond MP have issued a press statement explaining why they have issued these new powers for the BoE.

The Bank’s Financial Policy Committee (FPC) will be granted these new powers to “help it protect the financial system from future risks in the buy-to-let mortgage market,” says the government.

The FPC is responsible for identifying, monitoring and taking action to remove or reduce systemic risks in the financial system. The new powers of direction says the government, “will enhance the FPC’s existing macro-prudential toolkit – the tools it has at its disposal to head off potential threats to financial stability should they arise.”

From early 2017, the FPC will be able to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on buy-to-let mortgage lending in relation to:

• loan-to-value (LTV) ratios

• interest coverage ratios (ICRs)

It follows the FPC recommending that it be given these additional powers of direction over both the residential mortgage lending market and the buy-to-let mortgage market back in September 2014. These powers were granted over the residential mortgage lending market in April 2015 and following a consultation the FPC recommended new powers relating to the buy-to-let market.

The consultation noted the positive impact of buy-to-let landlords in the economy, and the role they play in widening and balancing the overall housing market:

“They provide good quality accommodation for those who cannot at this point afford to buy a home, or who do not wish to commit to home ownership for personal or employment reasons.”

At the same time, the consultation set out the financial stability risks that buy-to-let lending may pose and how the FPC’s recommended tools would address these risks and ensure long-term economic stability.

The Chancellor of the Exchequer, Philip Hammond, said:

“It is crucial that Britain’s independent regulators have the tools they need to keep our financial system as safe as possible.

“Expanding the number of tools at the Financial Policy Committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.”

… LandlordZONE.

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