The Bank of England will be granted new powers by the government to regulate mortgages used by small buy-to-let landlords to purchase rental property, the chancellor Philip Hammond has announced.
The Bank of England will, from early next year, be able to limit loan-to-value ratios on buy-to-let mortgages, as well as the minimum amount by which the expected rental income from a property must exceed mortgage interest payments, in a move designed to help protect the financial system from future risks in the buy-to-let mortgage market.
The Bank had initially asked for these powers more than two years ago, and the government held a public consultation about this in early 2016.
Hammond said: “It is crucial that Britain's independent regulators have the tools they need to keep our financial system as safe as possible.
“Expanding the number of tools at the Financial Policy Committee's disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.”
Having long provided mega double-digit returns for investors, investment in buy-to-let has outperformed all major asset classes in recent years. But the government’s decision to introduce a number of measures to curb the growth of buy-to-let landlords has prompted concern that the buy-to-let windfall may be coming to an end.
From a landlord’s perspective, it has been a tough year, with a raft of changes designed to bring the booming housing market under control and create what the former chancellor George Osborne described as a “level playing field” between homeowners and investors.
Aside from the introduction of the stamp duty surcharge in April, the 10% Wear and Tear tax relief for landlords who rent out furnished homes has been abolished, leaving them free to only claim for the amount that they have spent, while mortgage tax relief is set to be phased out from next year.
Now, the Bank of England’s Financial Policy Committee is being granted greater powers over the buy-to-let market, which could make it even harder to get a mortgage, while landlords have also been hit with new rules, including the need to check the residency of their tenants along with various health and safety regulations.
So whilst investing in property has long been perceived to be a safe alternative to the failing of the pensions industry, the reality is that for some people buy-to-let suddenly looks like an unattractive proposition.