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The Bank of England has expressed concern about the buy to let lending sector as landlords take on more debt to buy increasingly expensive properties. The bank is worried that the inflated buy to let mortgage sector could cause far-reaching instability if another financial crisis hits.
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Landlord Lending Booming
Landlord lending has risen by a whopping 40% since 2008, as landlords jump on to the buy to let bandwagon. In contrast, owner-occupier lending has only risen by 2% because property prices are high and lending protocols are a lot stricter in the private sector.
Unfortunately, Bank of England lending statistics show that landlord mortgages are twice as likely to turn toxic, and if a significant chunk of buy to let lending goes bad, it will threaten the entire lending sector, in the same way that the collapse of the sub-prime lending market in the U.S. sparked the global recession.
Landlords Vulnerable to High Interest Rates
Mark Carney, Governor of the BoE, is concerned that many landlords will be vulnerable to a slowdown in the housing market and a corresponding rise in interest rates. If interest rates rise, some landlords will try and sell their properties, causing a glut of properties for sale and a fall in prices.
As a result, the bank’s Financial Policy Committee is calling for extra powers to restrict buy to let lending. Until they are granted, the FPC is “ready to take action if necessary to protect and enhance financial stability, using its powers of recommendation.”
