New threat to buy-to-let landlords

Bank of England may impose tighter lending rules

'Row of terraced houses in Alderley Edge, Cheshire, UK. The nearest house is available to rent.'

Chancellor George Osborne says he is considering giving new powers to the Bank of England, allowing it to limit lending to buy-to-let landlords.

The UK currently has over two million buy-to-let landlords - half a million more than six years ago - who are currently subject to looser lending standards than owner-occupiers.

Earlier this month, the Bank of England warned that this could pose a threat to the economy by boosting house prices - or accelerating a fall if there's a downswing, particularly if interest rates rise.

"The financial policy committee has identified buy-to-let mortgages as something they wanted to have oversight over and make recommendations on. I agreed we would pass on oversight and give them powers to look at the buy-to-let market and make recommendations. That is in train," Osborne told a Treasury select committee yesterday.

"We are looking at directional powers as well. We will make an announcement in the next couple of months, and it is happening this year."

In the Budget recently, Osborne announced new plans to reduce the current generous buy-to-let tax breaks over the next four years. He also announced that wealthier landlords will no longer receive higher rate tax relief.

However, Osborne said he didn't want to harm buy-to-let landlords, telling the select committee: "There are many people who have saved hard throughout their lives to buy a little property and rent it out. Those are people we absolutely want to support and help. But I think there are concerns we have to address."

Osborne hasn't revealed the details of his plans, but measures could include allowing the Bank to extend the new, tougher residential lending criteria to the rental market, making it harder for landlords to get interest-only mortgages.

More extreme possibilities could include allowing it to restrict the proportion of buy-to-let mortgages that lenders can offer.

Any tightening of the rules could cause rents to rise. A survey published yesterday by the Residential Landlords Association revealed that nearly two thirds of landlords are already considering hiking their rents in response to the Budget changes.

However, other say that giving buy-to-let landlords favourable terms has pushed up house prices and shut out more first-time buyers from the market.

Buy-to-Let Mortgages

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