Government to consult on FPC's buy-to-let controls

The government is seeking views on the powers the Bank of England should have over the UK's buy-to-let mortgage market.

Related topics:  Finance News
Rozi Jones
17th December 2015
iStock_000009992808Large.jpg

The government has launched a consultation to assess the impact of the Financial Policy Committee's new powers over buy-to-let mortgages, and how the operation of the buy-to-let market may carry risks to financial stability.

In his Mansion House speech on 12 June 2014 the Chancellor committed to ensuring that the FPC has “all the weapons it needs to guard against risks in the housing market”. He announced his intention to give the FPC “new powers over mortgages, including over the size of mortgage loans as a share of family incomes or the value of the house”.

In April 2015, the government legislated to give the FPC powers of direction over the PRA and the FCA in relation to LTV and DTI limits in respect of owner-occupied mortgage lending.

Specifically, the FPC recommended that it be granted the power to direct, if necessary, the PRA and/or FCA to require regulated lenders to place limits on residential mortgage lending, both owner-occupied and buy-to-let, by reference to LTV ratios and debt-to-income ratios, including interest coverage ratios in respect of buy-to-let lending.

The consultation also seeks respondents’ opinions on the specific tools in relation to which the FPC has recommended it be granted powers of direction, including in their impact on business activity and prosperity, on the draft legislation, and on the consultation stage impact assessment.

Chancellor of the Exchequer, George Osborne, said:

"Ensuring that Britain’s financial services sector is resilient enough to withstand future shocks is a key part of the government’s economic plan.

"That is why the government has radically reformed Britain’s supervisory landscape, putting the Bank of England back at its heart. And it is why we created the Financial Policy Committee with a clear remit to identify and address potential financial stability risks.

"Today’s consultation is the next step in ensuring that the FPC has the tools it needs to protect our economy."

CML director general Paul Smee said:

“We understand the rationale for putting the macroprudential tools at the Bank of England’s disposal, but also recognise that this does not necessarily mean they will be used. In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated. We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”

Peter Williams, Executive Director of IMLA, commented:

"While we welcome this opportunity to contribute to the Treasury’s consultation on the granting of powers of direction over BTL lending to the FPC, the industry should be forgiven if it is collectively a little confused at this juncture.

“In the autumn the Chancellor – in giving evidence to the Treasury Select Committee – appeared to state unequivocally that the power to place limits on buy-to-let mortgage lending was to be granted without the previously-advertised consultation having taken place as to whether new powers were justified at all. In the last few days the Governor of the Bank of England also appeared to suggest that he was preparing to exercise such powers.

“Now the consultation on what those powers might be has finally materialised, there is much that should be discussed and challenged. The points advanced in support of further regulation do not appear to be well supported by evidence. At the same time there is considerable work required on the part of lenders and trade bodies to bring together a detailed response, and we should be reassured that this will not be a waste of time if the consultation is simply to rubber-stamp a decision already made behind the scenes."

More like this
Latest from Property Reporter
Latest from Protection Reporter
CLOSE
Subscribe
to our newsletter

Join a community of over 30,000 intermediaries and keep up-to-date with industry news and upcoming events via our newsletter.