Government Plans to Regulate Buy-to-Let Mortgages

Speaking to a Parliament Committee on Wednesday (21/10/2015) George Osborne said “The governor of the Bank and the FPC (Financial Policy Committee) have asked for additional powers over buy-to-let mortgages which weren’t included, and we have granted those powers”. He went on to say that yet has yet announced it “I’d better wait until we actually make the announcement, but (this will be) as soon as possible”.

The news George Osborne had decided on regulating commercial finance came as a shock as he previously rejected it and the Bank of England said the Government intended to consult on buy-to-let lending later in 2015, with ‘a view to building an in-depth evidence base on how the operation of the UK buy-to-let housing market may carry risks to financial stability’, it would seem the consultation never arrived.

Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), said: “The Government stated its intention earlier this year to hold a post-election consultation to assess the evidence for granting powers of direction over buy to let lending to the Financial Policy Committee (FPC). It was therefore very disappointing to hear the chancellor apparently jump the gun at yesterday’s treasury select committee. It suggests a stage of evidence-led policy making has been removed, and that the consultation may be limited to what those powers will be when – rather than if – they are granted.”

Individual lenders also spoke out about the announcement. Charles Haresnape, Aldermore Group managing director, said the lender welcomed any policy to improve the private rented sector but said it was important that any powers granted do not jeopardise the buy-to-let market.

“The private rented sector is a vital component of the UK housing market and policy levers must be used to support the sector in driving additional capacity,” he said, “It is important that the financial policy committee works closely with the sector and uses any powers sparingly and appropriately, and not unnecessarily remove any momentum from the private rented market.”

Steve Griffiths, head of sales and distribution at Kensington Mortgages said it will be interesting to see what powers the Bank of England is given when further details are announced later in the year.

“The rental sector is becoming increasingly important to the UK housing market and many people are staying in rented accommodation for much longer than we have seen historically,” he said, “The quality and variety of such accommodation has improved significantly following the growth of buy to let, and it is vital that these standards are maintained in the future. It would be short sighted to limit landlords’ ability to deliver quality rented accommodation when many people rely on this sector.”
In 2014, the BoE asked for the power to cap the size of landlords’ mortgages as a multiple of their expected rental income, similar to the loan-to-income cap it had imposed on residential mortgages.

The Buy to Let market is currently based around rental cover required is 125% at 6% notional rate, which means for a loan of £100k you will require £625 per month rent as a minimum.

It is yet to be seen; what increased rental calculations will be? how this will reduce supply of rented properties? and the effect it will have on rents charged by landlords.

The Bank of England has requested such powers as they see Buy to Let as a risk to the economy, the micro-management powers requested of amending the criteria of lenders deciding for both Landlord and Lender what risks they can take in there businesses is seen as the failure of government with “too big to fail” banking.

A finance ministry source said the details of the new powers remained subject to a consultation that was due to start before the end of the year.

This is the second shot across the bow of the landlords from the Chancellor of the Exchequer in recent months after plans for an unparalleled change to how business loans are treated. The chancellor says that landlords received mortgage interest relief, where Landlords view it as the Chancellor charging tax on revenue instead of profit – a scheme unseen in any other business sectors.

The majority of landlords put their faith in the Conservative Party in May believing Ed Miliband with his rent control and anti-landlord rhetoric being a risk to the private rented sector. So when the chancellor announced restrictions on the tax relief on buy to let mortgages, it came as a shock, with many feeling betrayed.

Other changes have also annoyed landlords with “retaliatory eviction” regulation ensuring a tenant can expand there tenancy above the term agreed by complaining to a council housing officer about a housing fault of an issue that they are not required to notify a landlord beforehand.

The introduction of Universal Credit which caused major concern with rent being the first benefit element to be reduced with Benefit Caps and restrictions on the Landlord being paid direct if the tenant is in arrears or vulnerable.

The new introduction of “right to rent” putting landlords as a element of the UK’s Border Force – student landlords feel under real pressure to ensure there tenants have a legal right to be at the property and then having to ensure the tenant keeps that legal right to reside or face financial penalties.

Upcoming Energy Performance Requirements above the current HHSRS making properties unrentable if they do not meet certain energy performance, a worry to many landlords that supply electric heating elements instead of gas.

Landlords should not be punished for running a business or making profits. With social housing in long-term decline and mortgages still out of reach for many, the private rented sector plays an invaluable role in housing the growing population.

Landlords need to stand up for their rights and the good of the industry by lobbying their local MPs to tell them the truth of how the Budget will hit them and their tenants and how Bank of England deciding if they can get a loan or not will affect the market.

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