Buy-to-let could be threatening UK financial stability

<p>Bank of England Financial Policy Committee warns that UK landlords are vulnerable to rapid price changes.</p>

The Bank of England has warned that the buy-to-let market in Britain could be a threat to the country's financial stability.

According to the bank's Financial Policy Committee (FPC), landlords are more sensitive to changes in housing prices – they buy rapidly when prices begin to rise, but tend to sell during a downturn. This pattern of buying puts additional pressure on house prices and leads to landlords taking bigger loans – it could also "exacerbate a downturn".

Buy-to-let mortgage lending has increased by more than 40 per cent since 2008. In a statement following its quarterly meeting, the FPC said: "Over the same period, the stock of owner-occupier mortgage lending rose by only two per cent."

The committee said risks from the buy-to-let market would probably be "contained" in the case of moderate drops in house prices. However, buy-to-let housing stock could be disproportionately vulnerable to very large falls in house prices".

In addition, the FPC suggested that the UK's ageing population, combined with new pension freedoms, could increase the prevalence of buy-to-let lending in the future.

"As the market continues to grow, particularly if driven by loosening of underwriting standards, the sector could pose risks to broader financial stability, both through credit risk to banks and the amplification of movements in the housing market," the FPC said.

More powers for the Bank of England

Earlier this month, governor of the Bank of England Mark Carney said that he was in talks with Chancellor George Osborne about giving the Bank more powers to oversee the buy-to-let market.

Last year, the FPC introduced regulations, requiring banks to ensure that no more than 15 per cent of residential mortgages were given to people borrowing more than 4.5 times their income. "Stress tests" are also required to help ensure borrowers can repay loans. However, these new rules to not cover buy-to-let mortgages – and these cover about one-sixth of the mortgage market.

Mr Carney said the FPC would decide on its recommendations by the end of the year.

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