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Buy to let borrowing has uncertain future in 2016

23 December 2015

Buy to Let Borrowing UncertainBank of England governor Mark Carney is determined to keep a straitjacket on buy to let borrowing.
Carney has promised to wield new powers given to him by the government to ensure landlord borrowing does not get out of hand.

Both Carney and the Chancellor George Osborne have argued recently that the amount of buy to let lending and relaxed borrowing rules are distorting the property market and present a risk to the country’s economic recovery.

Buy to let now accounts for almost 10% of all mortgage transactions in the UK, according to the Council of Mortgage Lenders (CML), the trade body for most of the country’s landlord lenders.
“We have to be careful about buy to let and the things happening in that market,” said Carney.
“We are watching closely and will step in and take action if we have to.”

The new powers allow the Bank to cap mortgage loan-to-values, so lenders are restricted:
  • To advancing a lower percentage of a property’s value
  • Increasing rent stress tests by putting up rent cover requirements from 125% of a property’s monthly rent to 130% or more
Some lenders have already tightened lending criteria, such as The Mortgage Works and Barclays Bank, and many others are likely to follow suit.

As a result of Carney’s comments and Osborne’s tinkering with landlord tax from April 2016, the CML feels the future of buy to let is uncertain.

Forecasts for 2016 and 2017 expect borrowing to stick around the 2015 level.

“Our view is buy to let is not a market that needs intervention, especially until the effect of recent tax changes is seen and evaluated,” said a CML spokesman.

“We think policy makers need to be careful about unintended consequences that may result from their actions and comments.”

From April 2016, higher learning landlords will see their tax relief on mortgage interest payments phased out by 50% by 2020.