Economists and landlords were at loggerheads today in an unlikely battle between homeowners and number-crunchers over the latest clampdown on the buy to let (BTL) market.
Following a four-month investigation, the Bank of England today announced plans to tighten the terms and conditions under which banks and building societies can offer mortgages to anybody purchasing residential rental properties.
Read more: Buy to let clampdown explained
Lenders will now have to carry out a rigorous assessment of a borrower’s ability to keep up with their interest payments, which could include looking at other forms of personal income, as regulators seek to close the gap between the rules governing mortgages granted to owner-occupiers and landlords.
What the economists say
Ratings agency Moody’s welcomed the changes, saying “more stringent regulation and measures to cool the market [will] be positive for financial stability”. It cited the paradox that the “BTL market is less regulated than the owner-occupied segment, despite its size and its potential to de-stabilise the financial system”.
“The UK’s banks and financial system as a whole would benefit from stricter conduct and tighter underwriting standards in the BTL sector … bank write-offs on BTL portfolios have been higher than for owner-occupier ones; and arrears on BTL mortgages are more cyclical and tend to reverse and rise during financial downturns,” Moody's added.
What the landlords say
Landlords, however, were not best pleased with the latest attempt to cool the market. The Residential Landlords Association (RLA) said the proposals were unnecessary “given the considerable tax changes being made to the sector”.
David Smith, policy director at the RLA, urged the Bank to “tread carefully and avoid any premature moves that could stifle the supply of the 1 million rental properties the country desperately needs”.
In reference to recent changes to stamp duty and tax relief for landlords, Jeremy Leaf, a former chairman of the Royal Institute of Chartered Surveyors, said the Bank’s proposals were “a classic case of slamming the stable door after the horse has bolted”.