This consultation aims to gather views on how the operation of the nation’s buy to let mortgage market may carry risks to financial stability. It also seeks respondents’ opinions on the specific tools in relation to which the FPC has recommended it be granted powers of direction, including in their impact on business activity and prosperity, on the draft legislation, and on the consultation stage impact assessment.
The consultation is primarily targeted at individuals, institutions and associated bodies that would be affected by the FPC’s powers of direction but the government said that it also welcomes the views of other parties interested in housing market policies.
Following the consultation, the government will examine the consultation responses and use them to help to define the instrument that will place the powers in legislation. The government will set out how it intends to proceed in a consultation response document in 2016.
It comes at a time when the private rented sector (PRS) has grown rapidly in recent years, from 2.5 million properties in 2002 to 5.2 million in 2013, from 10% of the market to 19% respectively.
The government believes that the Bank of England should have more tools at its disposal to cool the buy to let market if necessary such as directing regulators to require lenders to place limits on buy to let lending.
The amount buy to let investors could borrow as a proportion of the property price, or the loan to value ratio, could be capped or the Bank could also increase the required ratio of expected rental income to mortgage interest payments.
Lenders are not fully supportive of more controls currently for the buy to let market and are warning that the market does not necessarily need more regulations and that new rules for by to let landlords, including an extra 3% stamp duty from April 2016, should be allowed to take effect.
‘We understand the rationale for putting the macro prudential 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 macro prudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated,’ said Council of Mortgage Lenders director general Paul Smee.
‘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,’ he added.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association, suggested that the industry is confused by what the government is trying to do. ‘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,’ he pointed out.
‘Recently 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,’ he said.
‘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,’ he added.
