The Bank of England is to be given powers to control buy-to-let mortgage lending.
In what could be a highly significant move, Chancellor George Osborne said that he will extend the powers of the Bank and the Financial Policy Committee to the sector.
It follows concerns that buy-to-let borrowers could be particularly exposed in any downturn in the market, and that this could rock the wider housing market and the general economy.
Speaking to the Treasury Committee, Osborne said: “I think it’s true that, if you look historically at the UK, one of our biggest challenges has been managing credit booms and house price cycles. That’s why we created the Financial Policy Committee, in part to try to manage some of those risks.”
The Bank of England had earlier said that the Government intended to launch a consultation on buy-to-let lending this winter.
However, this seems to have been overtaken by Osborne’s revelations.
He told the Treasury Committee: “The governor of the Bank and the FPC have asked for additional powers over buy-to-let mortgages which weren’t included, and we have granted those powers.
“I’d better wait until we actually make the announcement, but (it will be) as soon as possible.”
It is not clear what those powers might be, but essentially they could make it harder for a landlord to borrow. Curbs could include a clampdown on the number of buy-to-let mortgages a landlord might have and caps on loan-to-value amounts.
Landlord bodies are likely to greet the news negatively, concerned that the Government’s stance is anti-private landlords.
Osborne’s revelations yesterday follow his Summer Budget announcement that some landlords will no longer be able to offset costs of borrowing against tax. While the Treasury says that only 20% of landlords will be affected by this, the Residential Landlords Association insists the proportion will be 60%. Savills has also produced sums which show that landlords currently making profits will be making losses when the new regime is implemented.