Bank of England poised to announce new measures to clamp down on the buy-to-let market

Lauren Fedor
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The Bank has said it "stands ready to take action" on the buy-to-let market (Source: Getty)

The Bank of England appears poised to introduce new rules to clamp down on the buy-to-let property market amid fears that the sector poses big risks to the UK economy.

Chancellor George Osborne told MPs last week that it is “highly likely” that he will give the Bank’s Financial Policy Committee (FPC) powers over the buy-to-let sector given the “knowledge that the Bank of England has concerns about a bubble emerging in this market”.

"The measures I have taken in the last couple of fiscal events – on additional stamp duty, on changes to mortgage interest relief – have been done in the knowledge the Bank of England has concerns about a bubble emerging in this market,” Osborne told members of the Treasury Select Committee on Thursday, pointing to a new three per cent stamp duty surcharge on buy-to-let properties and second homes that is set to go into effect at the end of this week.

"It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year.”

The Bank has repeatedly warned that the buy-to-let sector poses a significant risk to the UK economy, saying it “stands ready to take action if necessary” to cool the market. The Bank is set to publish a paper from the Prudential Regulation Authority (PRA) on underwriting standards for buy-to-let contracts tomorrow, alongside a statement from the FPC’s latest policy meeting and details of the scenario for this year’s stress test of Britain’s biggest banks.

Earlier this month, Sir Jon Cunliffe, deputy governor of the Bank of England for financial stability, said there was a risk that if large numbers of buy-to-let landlords were to sell their properties at the same time, there could be a “spiral of house price declines” across the wider housing market.

Read more: Buy-to-let tax: Why a landlord exodus remains unlikely

Last year, the FPC asked the Treasury for new powers to introduce limits on buy-to-let mortgage lenders, including capping the loan-to-value ratio for buy-to-let loans. The FPC was already given similar powers over residential mortgages last April.

The British Bankers Association (BBA) reported last week that £13.2bn of mortgage borrowing was approved in February, 33 per cent higher than at the same time last year. The number of mortgage approvals last month was also 26 per cent higher than a year ago.

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