BoE wary of buy-to-let
The Bank’s Financial Policy Committee said that around 40% of buy-to-let investors would respond to falling house prices by selling their properties, which would make any housing crisis deepen.
It added that it is “alert” to rapid growth in the market continuing with looser underwriting standards as lenders clamour for business.
Since 2008 buy-to-let lending has risen by 40% compared to 2% for owner-occupier property.
The Bank of England statement said: “The Committee considered the rapid growth rate of buy-to-let mortgage lending.
“It does not consider action to be warranted at present but will monitor underwriting standards and other conditions closely.
“The stock of buy-to-let lending might be disproportionately vulnerable to very large falls in house prices.”
It added: “Buy-to-let mortgage lending has the potential to amplify the housing and credit cycles, though the extent of the amplification is hard to judge because the market has only recently grown to significant levels.
“Any increase in buy-to-let activity in an upswing could add further pressure to house prices. This could prompt owner-occupier buyers to take on even larger loans, thereby increasing overall risks to financial stability.
“Demand for buy-to-let lending is itself likely to be cyclical, as in an upswing demand may increase from landlords seeking not only rental return but also capital gains.
“Survey evidence suggests that around 40% of buy-to-let investors would respond to a fall in their rental income below their interest payments by seeking to sell their property.”
David Cox, managing director, Association of Residential Letting Agents, objected to the FPC’s suggestion that investors would leave the market in droves if house prices fell.
He said: “This morning’s news from the Bank of England suggested that buy-to-let landlords are likely to sell their properties if house prices drop significantly – but this is an unlikely reaction.
“Buy-to-let landlords range from professional landlords, who make their incomes on their properties, to those who may own just one property and will be taking a long term view of capital appreciation, and so will hold on to it should prices fall.
“As long as rents are still covering the costs of buy-to-let properties, we don’t see landlords exiting the market in droves.
“However, what we might see is landlords struggling when mortgage interest rates rise – whenever this may be. As they fall into financial difficulty, many may be forced out of the market.”