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The Bank of England could soon be placing restrictions on buy to let lending, according to Chancellor George Osborne. The Treasury is planning tough new rules for residential borrowers, including loan caps, but it looks as if landlords will also be facing the same restrictions next year.
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The bank’s policy committee wants extra powers to be able to slow down lending and prevent another property market implosion. An unstable property market is a big threat to the UK’s economic recovery. Toxic mortgage debt caused the downfall of a number of high profile lenders at the height of the economic recession and the last thing George Osborne wants is for the property market to overheat once again and cripple banks and other lending institutions with bad debt.
Buy to Let a Threat
Apparently Osborne views landlords and the booming buy to let industry as a real threat and he believes that the Bank of England needs a ‘toolkit’ to manage lending.
According to the consultation document published by the Bank of England’s financial committee: “The financial planning committee wants powers of direction over loan-to-value limits and rent cover ratios for new buy to let mortgages and remortgages where the amount of borrowing increases.”
Loan Affordability
The committee is looking at a number of key issues, including whether existing buy to let debt and rental income should be taken into account deciding affordability of a new loan.
The report also says that: “Rental income is likely to be taken into account by prudent lenders as personal income when they have evidence that property business expenses have already been deducted from the amount.”
