There is a new warning from the Bank of England suggesting that - despite all the recent measures aimed against buy to let investors - the sector “could pose a risk to broader UK financial stability.”
One year ago - to this very day - Letting Agent Today reported that the BoE’s Financial Stability Report warned against the relaxation of lending criteria being offered by mortgage companies, such as reducing the size of deposits or income requirements for buy to let investors.
At that time the Bank said in its FSR document that: "The committee remains alert to the rapid growth of the UK buy-to-let market, and potential developments in underwriting standards as the sector could pose a risk to broader financial stability."
Since then there has been a string of fiscal measures to recover more revenue from the private rented sector and a recent setting out - by the Bank of England itself - of new ‘stress test’ powers given to it by the Treasury to control borrowing to increasingly ‘safe’ investors who were in a position to put down large deposits, in particular.
However, this still appears not to have assuaged the doubts of those compiling the Bank’s Financial Stability Report; this year’s document contains another warning.
“The buy to let sector has been the main driver of growth in the UK mortgage market over recent years. Between the start of 2009 and the end of 2015 the outstanding stock of buy to let lending grew by around six per cent a year on average, compared with around 0.3 per cent for owner occupier mortgages.
“This rapid recent growth means that the vulnerability of banks’ buy to let portfolios to a severe economic downturn has not been observed, so it is more uncertain than the performance of owner occupier mortgages in a stress test.
“In aggregate, impairment rates on banks’ buy to let loans are estimated to be about two and a half times higher than for owner occupied mortgages over the five years of the stress [test].
“In its December 2015 Financial Stability Report the Financial Policy Committee [of the Bank of England] observed that new loans to buy to let investors are often subject to less stringent affordability tests than loans to owner occupiers.
“The FPC remains alert to the rapid growth of the UK buy to let market and any potential loosening of its underwriting standards, as the sector could post a risk to broader UK financial stability.”