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Are BTL lending restrictions on the way?

The buy-to-let market could pose a threat to financial stability, according to the Bank of England.

In its biannual Financial Stability Report the BoE says in the year to March 2015, buy to let lending expanded by 8% and now accounts for 15% (or more than one in seven) of the stock of outstanding mortgages. It also accounts for 18% of new mortgage lending.

But the bank goes on to say that the actions of buy-to-let investors affect the broader housing and mortgage markets as individuals compete to buy the same pool of properties.

“Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness,” said the report.

It went on to warn that BTL could also cause prices to fall more quickly in the event of a housing market crash or when interest rates rise.

“And in a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages,” said the report, “This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs. Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending.”

The bank said it would consult later this year on possible powers over the buy-to-let market it could give its financial policy committee (FPC), a body set up to look for risks in the financial system in the wake of the 2008 financial crisis.

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