Government Set to Restrict Buy-to-Let Mortgages

A recent warning from Bank of England Governor Mark Carney regarding buy-to-let mortgages appears to have been heeded very quickly by the Chancellor George Osborne. On 22nd October, Mr Osborne made an announcement that indicated he wished to provide new powers for the Bank of England to regulate mortgages for buy-to-let customers. This could make it much harder for people to buy properties to rent out to other people. The Chancellor made the announcement at the Treasury select committee on Thursday. Mr Carney had sought additional powers The Governor will no doubt be pleased at this announcement from the Chancellor, as he had previously requested powers of this kind to be given to the Bank of England. Mr Osborne confirmed to MPs that the bank had been granted extra powers to ensure they could tighten current mortgage standards if required. This could help stave off a potential credit bubble. Mr Osborne also confirmed the bank would now have extra powers over buy-to-let mortgages. Easier to get? By now most people will be aware of the Mortgage Market Review that came into force some 18 months or so ago. It tightened up the criteria for lending to those who wished to take out a mortgage. However the rules did not extend to those who wanted to get buy-to-let mortgages. This meant that while would-be homeowners were subjected to far more rigorous tests and questions regarding their ability to pay back a mortgage, the same was not true for those who wanted a buy-to-let mortgage. They have found it far easier to get the mortgage they wanted so they could build a buy-to-let empire. The new ruling means the market could be a much more level playing field than it was previously. Recent statistics show home ownership in the UK is down to the lowest level in over a quarter of a century (26 years). The tighter rules on mortgage lending, coupled with rising house prices and stagnant wage growth have led to numerous difficulties for those wanting to buy a home. Meanwhile would-be buy-to-let landlords are still able to get mortgages far more easily than would-be homeowners can. This means there are more properties to rent than to buy, and landlords are making the most of the larger pool of people who have to rent because they cannot afford to do anything else. Subject to an official consultation period According to reports, the new measures will still have to pass an official consultation period before they can be brought into action. Still, while landlords are not likely to respond well to the news, homeowners may hope it will free up some housing stock for the future. The new powers may also potentially ensure the housing market is not as fragile to the effects of a housing bubble as it may otherwise be. We shall watch closely to see whether the new rules will indeed make it through the consultation period mentioned by George Osborne later this year.

Published on 25 October 2015

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