The Bank of England is now concerned that the Buy to Let mortgage market and the economic slowdown in China could pose a threat to the UK’s banking system. It appears that they are scrutinising the sector to see if there are moves by lenders to make borrowing easier for landlords. The stance taken by the Bank appears to be having an effect on lenders who are possibly concerned that a tough lending regime could be imposed on them, and I believe with this in mind Banks are self regulating with for example NatWest having toughened the criteria for gaining a Buy to Let mortgage, and Barclays have increased the length of its Buy to Let application process.
In its quarterly update on potential risks to the financial market the Bank says it was not taking any immediate action to cool Buy to Let, but it is concerned that the sector could magnify falls and rises in the housing market. It is aware that since the financial crisis due in part to low deposit rates Buy to Let lending has become very popular. The data they have published suggests that Buy to Let lending has increased by more than 40% since the crash whereas owner occupied lending has only increased by 2% since 2008. They say they have evidence that 40% of Buy to Let investors would sell their properties if rental income fell below the interest payments they are paying. Obviously if this happened the Bank is aware that this could cause mayhem in the housing market and it is asking for the Government to be given powers to intervene in the Buy to Let market as it already can in the residential market.
I have already noticed that pressures have been building in the local letting market and with over 300 properties to let on Rightmove within 5 miles of Lancaster I am getting concerned about oversupply in the letting market. If this does happen then pricing power could pass to tenants who could negotiate lower rents in the knowledge that they hold the whip hand.
These potential events could heap further pressure on landlords, who also have to contend with the spectre of higher interest rates and higher costs to comply with new regulations. So with higher taxes on profits from Buy to Let kicking in 2017 it is looking likely that a high percentage of landlords could be coming under pressure to sell soon. People in the market have their decisions to make, but those entering Buy to Let I believe more than ever need to be sure it is right for them and they are in it for the long term. Also they need to be prepared to subsidise the property if necessary, as I believe Government concerns with regard to financial stabilisation outweigh their aim of having a healthy rented sector so landlords need to watch out.
Kieron Bassett Dip PFS, Cert SMP
28th September 2015
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