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A step too far?

Tony Ward

July 6, 2015

Tony Ward is chief executive of Clayton Euro Risk

Browsing through this week’s papers one of the headlines I came across provoked a ripple of concern. It read as follows: ’Booming buy-to-let puts economy at risk’.  The piece went on to suggest that the Bank of England has raised fears that burgeoning growth of the buy-to-let market may be putting the economy in jeopardy. Why would this be the case?

In its latest financial statement, the Bank warned that lending to landlords is growing far faster than the rest of the mortgage market. This pace is set to continue given that reforms in retirement pots mean that pensioners can take the opportunity to invest cash in property, many of them being amateur landlords new to the market.  This may very well be the case: you can see the allure of potentially higher rates of return to older people given that interest rates on savings accounts are at rock bottom.

The article suggested that the Bank of England would be stepping up its oversight due to its concern that the rate of growth is increasing at a prolific pace.  There was also a hint that the prospect of a boom may encourage banks to take greater risks with their lending as they compete for customers, which ‘could pose a risk to financial stability’. The Bank said UK household debt ‘remains high compared to historical and international norms’ and ‘lending standards in the buy-to-let sector could contribute to…a broader increase in household indebtedness’.

 For what it’s worth I believe that lending in this sector will increase significantly but lenders, in the main, will be sensible. Having said that, I am pleased that the government is taking an interest in this market.  Aside from the incoming European Mortgage Credit Directive, which will mean ‘consumer’ landlords are regulated from March next year, perhaps some degree of universal light touch regulation in the near future would be a positive step.

As for ‘putting the economy at risk’, I know sensational headlines sell newspapers but this type of scaremongering might be a step too far. 


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