Crackdown on buy-to-let mortgages

The mood music is getting menacing when it comes to the approach now being sounded by regulators not just in the UK but across the world according to latest reports.

Global action on buy-to-let mortgages

Officials at the Basel Committee which sets financial standards across the world want banks to hold twice as much capital when loans are dependent on rents and tenants as a posed to mortgages that finance a house purchase.  Currently, under Basel Committee rules banks have to apply a 35% risk weighting to residential mortgage loans with a Loan To Value (LTV) ratio of between 60-85%. The new plan would mean this weighting could double to 70% if the loan is dependent on rental income.  This would double the amount of capital the bank would need to hold against the loan and thereby increasing it's financing cost which would be passed on to landlords in terms of higher borrowing costs.

Bank of England also poised to act on buy-to-let mortgages

The global clampdown comes at a time when the Bank of England are also looking at acting to restrict buy-to-let mortgages.  The rational is that buy-to-let lending has jumped 40% since 2008 whilst that to private owners has risen just 2%.  The fear of officials is that landlords may be more vulnerable to a fall in house prices or a rise in interest rates.  The fear could be that landlords are more likely to act in these events by selling up which could destabilise the rest of the housing market by increasing supply into a falling market.  The worry is that the controls on buy-to-let lending is less stringent than those in the private market.  This is a complete reversal to lending conditions prior to the credit crunch.

The Financial Policy Committee (FPC) chaired by Mark Carney (the Governor) is pushing for powers to force banks to hold more capital and thereby restricting the amount they are prepared to lend to the private rental sector and at the same time increasing the costs of borrowing.

Property Hawks message to landlords is that they cant rely on cheap buy-to-let mortgages for ever.  They do need to think about acting to either purchase now on a long-term fix or to consider remortgaging to fix in historic low rates of borrowing.  I am.

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