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The Bank of England is worried about the high level of buy to let funding and it says that it may have to place restrictions on the availability of BTL mortgages.
Appetite for Risk
According to a report recently published by the bank, buy to let lending now accounts for 18% of new mortgage lending.
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The BoE sees a growing appetite for risk spreading through underwriters and it points out that the numbers of BTL mortgage products advertised with LTV ratios of 75% and above has steadily increased since 2013.
Bank of England Report
“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,” says the bank.
“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. 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 Treasury will look at the matter further later in the year, and if it feels action needs to be taken, the BoE may restrict BTL lending.
