Trade bodies wary of buy-to-let regs

Sarah Davidson

December 18, 2015

Both the Intermediary Mortgage Lenders Association and the Council of Mortgage Lenders have warned against over-zealous regulation of the buy-to-let market ahead of a Treasury consultation.

Earlier today the government confirmed its intention to consult with the industry on what powers should be awarded to the Financial Policy Committee to impose caps on Buy-to-let lending should they consider the market to be overheating.

Peter Williams, executive director of IMLA, said: “While we welcome this opportunity to contribute to the Treasury’s consultation on the granting of powers of direction over buy-to-let lending to the FPC, the industry should be forgiven if it is collectively a little confused at this juncture.

“In the Autumn the Chancellor – in giving evidence to the Treasury Select Committee – appeared to state unequivocally that the power to place limits on buy-to-let mortgage lending was to be granted without the previously-advertised consultation having taken place as to whether new powers were justified at all.

“In the past few days the governor of the Bank of England also appeared to suggest that he was preparing to exercise such powers.

“Now the consultation on what those powers might be has finally materialised, there is much that should be discussed and challenged. The points advanced in support of further regulation do not appear to be well supported by evidence.

“At the same time there is considerable work required on the part of lenders and trade bodies to bring together a detailed response, and we should be reassured that this will not be a waste of time if the consultation is simply to rubber-stamp a decision already made behind the scenes.”

CML director general Paul Smee added: “We understand the rationale for putting the macroprudential tools at the Bank of England’s disposal, but also recognise that this does not necessarily mean they will be used.

“In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated.

“We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”

In June 2010, at his annual Mansion House speech, Chancellor George Osborne explained that a key weakness of the system of financial regulation was the lack of focus on broader risks across the economy, in areas such as the housing market.

As a result, the government created the Financial Policy Committee within the Bank of England. The FPC’s responsibility, in relation to the achievement by the Bank of England of its financial stability objective, relates primarily to identifying, monitoring and taking action to remove or reduce systemic risks with a view to protecting and enhancing the resilience of the UK financial system.

The FPC is empowered to make recommendations to HM Treasury that it exercise its statutory power to enable the FPC to direct the Prudential Regulation Authority and/or Financial Conduct Authority to ensure the implementation of specified macro-prudential measures.

In his Mansion House speech on 12 June 2014 the Chancellor committed to ensuring that the FPC has “all the weapons it needs to guard against risks in the housing market”.

He announced his intention to give the FPC “new powers over mortgages, including over the size of mortgage loans as a share of family incomes or the value of the house”.

In response to the Chancellor’s announcement, on 2 October 2014, the FPC recommended that it be granted powers of direction relating to housing market tools in relation to owner-occupied mortgages and buy-to-let residential mortgages.

Specifically, the FPC recommended that it be granted the power to direct, if necessary to protect and enhance financial stability, the PRA and/or FCA to require regulated lenders to place limits on residential mortgage lending, both owner-occupied and buy-to-let, by reference to: loan-to-value ratios; and debt-to-income ratios, including interest coverage ratios in respect of buy-to-let lending.

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