No BTL intervention “at this time”, says Bank of England
The Bank of England is not yet considering buy-to-let intervention, according to its latest Financial Stability Report.
It is the Bank’s first official comment on buy-to-let lending since the EU referendum. Earlier in the year, Bank regulators suggested tighter underwriting rules for buy-to-let mortgages.
The Bank took the view that hunger for expansion among lenders could lead to relaxed underwriting standards. This, it felt, would pose a risk to buy-to-let borrowers and the economy as a whole.
But the Bank’s Financial Policy Committee (FPC) agrees that existing buy-to-let safeguards are sufficient. It states that while interest rate stress tests are lower than recommended, high rental cover ratios and lower loan-to-values reduce credit risk. The FPC concedes that “no action beyond this [is] warranted” for the time being.
Easing of restrictions will inject another £150 billion into the economy
This easing of scrutiny comes as the Bank acts to prevent a post-Brexit recession.
With immediate effect, the Bank has reduced the UK countercyclical capital buffer rate. This means that banks can hold less capital to offset their UK-based lending. According to the Report, this will raise banks’ lending capacity “by up to £150 billion”.
Last Friday, Bank of England Governor Mark Carney hinted that further monetary stimulus may be around the corner. This could mean more quantitative easing and even a cut in the Official Bank Rate.
And earlier this week, Chancellor George Osborne told MPs that the Bank of England could act “to support funding for lending”, suggesting a possible extension of the government-subsidised Funding for Lending Scheme (FLS). The Scheme is currently due to end in 2018.
Comment: The Bank of England faces a difficult balancing act
It is gratifying that regulators acknowledge that, despite competition for business, buy-to-let lenders remain prudent and responsible when assessing risk.
The Bank faces a difficult balancing act following the Brexit vote. As Mr Carney has stated, the risks to the economy are becoming clear. The UK will need plenty of monetary stimulus to ensure that it does not slide into recession.
Nevertheless, the Bank should be mindful that debt does not return to pre-2008 levels of unsustainability. And the government must be sure to supplement monetary measures with large-scale investment in infrastructure, such as housing, to ensure long-term, sustainable economic recovery.
As for the buy-to-let and property markets, the outlook appears positive. Regulators are stepping back to take a ‘wait-and-see’ approach with lenders, and the central bank is ensuring that funds are readily available. This means that buy-to-let deals are likely to become even more competitive.
Meanwhile, bricks and mortar remains a strong investment. Whatever challenges the market faces, there is always a good argument for putting your money in property. There may be short-term uncertainty, but the fundamentals of the market mean that buy-to-let is still an excellent medium- and long-term alternative to traditional savings.
Andrew Turner, Chief Executive of Commercial Trust
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.