Bank of England to place limits on buy-to-let mortgages

New restrictions will be imposed on buy-to-let mortgages in an effort to help protect against the risk of instability, Chancellor Philip Hammond has announced.

The Bank of England's Financial Policy Committee (FPC) will be granted new powers from early 2017 to place limits on buy-to-let mortgage lending.

The FPC will be able to direct regulators to require lenders to put limits on the loan-to-value (LTV) ratios and interest coverage ratios (ICR) of mortgages.

A buy-to-let mortgage's ICR is the ratio of the expected rental income from the buy-to-let property to the expected mortgage interest payments.

The FPC, whose role is to identify and head off possible risks to the financial system, had previously recommended it should be granted the powers.

A consultation on the proposal finished in March and former chancellor George Osborne had indicated that the FPC would be given the powers, so the move is unlikely to surprise lenders.

Mr Hammond said: "It is crucial that Britain's independent regulators have the tools they need to keep our financial system as safe as possible.

"Expanding the number of tools at the Financial Policy Committee's disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability."

Under the new powers, the FPC will be able to direct the Prudential Regulation Authority and Financial Conduct Authority to require regulated lenders to place limits on buy-to-let mortgage lending in relation to their LTV and ICR.