Legal Experts Say Imposition Of Tougher Lending Criteria Is ‘Too Late’

The Bank of England is reported to be poised to clampdown on buy-to-let lending when it reports on the mortgage market for landlords. 

The Bank has been closely monitoring the buy-to-let market and is believed to be concerned about the amount of money being pumped into the market and its vulnerability to even a small rise in borrowing costs.

The Prudential Regulation Authority, the Bank’s regulatory arm, is expected to publish a report on Tuesday on underwriting standards for buy-to-let mortgage lenders, alongside scenarios for testing the financial strength of Britain’s banks.

The Bank is concerned that conditions for a property crash have been created after lenders relaxed their standards for landlords. 

Potential measures which might be recommended to rein in the market include limiting the percentage of buy-to-let mortgages for each lender, tightening the terms of such mortgages or forcing lenders to use more capital for the loans.

The buy-to-let market has seen a resurgence over the last few years with interest rates at all-time lows, making borrowing cheap and offering little return for people with money in the bank.

George Osborne’s stamp duty surcharge on second-home purchases, designed to cool the market, has prompted a short-term frenzy of buying before the 1 April deadline, further pushing up house prices. 

Last week the Chancellor said he was ready to give the Bank’s financial policy committee further scope to restrict buy-to-let lending.

Andrew Watters, tax partner at Thomas Eggar, part of the Irwin Mitchell Group said that despite measures to detract people from investing their cash in property, savers were still being tempted over pensions and shares.

“The rush to buy for landlords is to avoid the increased SDLT (Stamp Duty Land Tax)  on ‘additional property’.  This will be imposed from the new tax year which starts on 1 April (Friday).  

“The rush to buy has been going on since the announcement of the intention to increase the SDLT charge so the imposition of tougher lending criteria is a bit late.

“Going forward, the new rules make property acquisition more expensive for landlords and more new rules limit the deductions on interest payments and so increase tax bills.  

“This is meant to discourage investment in property, cool the market and make it easier for young people to get on the property ladder.

“However, a lot of people with spare cash may trust bricks and mortar more than shares and pensions and try to pass on increased costs by increased rents.   Generation Rent may become victims of the law of unintended consequences. 

“And when they turn to the Bank of Mum and Dad, the parents in question had better make sure that they do not unintentionally fall victim to the increased costs in the ‘additional property’ regime.”