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Buy-to-let could pose a threat to UK economy, warns Bank of England
Risks could be amplified as Britain prepares to raise interest rates for the first time since the financial crisis
Banks now issue buy-to-let mortgages that last until the borrower is as old as 105 Photo: Christopher Pledger
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By Andrew Trotman
12:39AM BST 02 Jul 2015
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The UK's booming buy-to-let housing market could pose a threat to financial stability, the Bank of England has warned.
In its biannual Financial Stability Report, the central bank warned that borrowers are finding it easier to access credit, and they may be putting themselves and the economy at risk by investing this money in buy-to-let properties.
"Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness," the Bank said.
"In a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages."
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The housing market section of the Financial Stability Report
Those risks could be amplified as Britain prepares to raise interest rates for the first time since the financial crisis, as a small rise in rates could wipe out the income from a property.
"This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs.
"Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest-only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending."
The Bank is edging closer to a rise in interest rates for the first time since the financial crisis, as the UK economy remains on track to move back into inflation, according to a policymaker, according to MPC member Ian McCafferty.
Buy-to-let borrowers now account for 15pc of outstanding loans and 18pc of the the flow of new mortgages.
This has been boosted by new rules that let retirees hold their properties in a personal pension, making future capital gains tax-free. Savers can also access all of their retirement funds from the age of 55, giving them a lump sum to put into investments such as buy-to-let.
The Office for National Statistics recently found that 42pc of 20,000 respondents considered property as the secret to creating the largest possible retirement fund, up from 32pc in 2010.
Around £1bn has been withdrawn from pensions so far by an estimated 60,000, with many more expected to cash in.
Charlotte Nelson, of data analyst Moneyfacts, said: "It’s highly likely that some of this money has been accessed with buy-to-let in mind.
"Savings rates are currently so poor that many are looking elsewhere to fund their retirement."
Meanwhile, mortgage lenders are competing to offer borrowers the best rates, the Bank noted, and "spreads" on loan-to-value deals of more than 75pc have dropped sharply.
The number of buy-to-let loans available rose 15pc in the two months since the pension reforms were announced in the Budget, and now stands at nearly 700. Banks now issue buy-to-let mortgages that last until the borrower is as old as 105.
That all comes as house prices have risen strongly, up 5.6pc year-on-year in the three months to May. The average price of a property in England and Wales has hit £179,696, accordng to the Land Registry.
Buy-to-let could pose a threat to UK economy, warns Bank of England
Risks could be amplified as Britain prepares to raise interest rates for the first time since the financial crisis
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Banks now issue buy-to-let mortgages that last until the borrower is as old as 105 Photo: Christopher Pledger Get a free trial subscription to Telegraph Dating Join Telegraph Dating and get a free seven-day trial subscription. Offer ends Sunday 5th July.Sponsored by Telegraph Dating
By Andrew Trotman
12:39AM BST 02 Jul 2015
Follow
221 Comments The UK's booming buy-to-let housing market could pose a threat to financial stability, the Bank of England has warned.
In its biannual Financial Stability Report, the central bank warned that borrowers are finding it easier to access credit, and they may be putting themselves and the economy at risk by investing this money in buy-to-let properties.
"Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness," the Bank said.
"In a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages."
fsr37sec4
Document
Pages
Notes
Text
Zoom
CLOSE Previous for “” Next
p. 1
Loading Loading
p. 2
Loading Loading
p. 3
Loading Loading
Contents
Related Article »
Contributed by: Telegraph Graphics, The Telegraph
« Page Note 1 of 4 0
»
To print the document, click the "Original Document" link to open the original PDF. At this time it is not possible to print the document with annotations.
The housing market section of the Financial Stability Report
Those risks could be amplified as Britain prepares to raise interest rates for the first time since the financial crisis, as a small rise in rates could wipe out the income from a property.
"This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs.
"Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest-only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending."
The Bank is edging closer to a rise in interest rates for the first time since the financial crisis, as the UK economy remains on track to move back into inflation, according to a policymaker, according to MPC member Ian McCafferty.
Buy-to-let borrowers now account for 15pc of outstanding loans and 18pc of the the flow of new mortgages.
This has been boosted by new rules that let retirees hold their properties in a personal pension, making future capital gains tax-free. Savers can also access all of their retirement funds from the age of 55, giving them a lump sum to put into investments such as buy-to-let.
The Office for National Statistics recently found that 42pc of 20,000 respondents considered property as the secret to creating the largest possible retirement fund, up from 32pc in 2010.
Around £1bn has been withdrawn from pensions so far by an estimated 60,000, with many more expected to cash in.
Charlotte Nelson, of data analyst Moneyfacts, said: "It’s highly likely that some of this money has been accessed with buy-to-let in mind.
"Savings rates are currently so poor that many are looking elsewhere to fund their retirement."
Meanwhile, mortgage lenders are competing to offer borrowers the best rates, the Bank noted, and "spreads" on loan-to-value deals of more than 75pc have dropped sharply.
The number of buy-to-let loans available rose 15pc in the two months since the pension reforms were announced in the Budget, and now stands at nearly 700. Banks now issue buy-to-let mortgages that last until the borrower is as old as 105.
That all comes as house prices have risen strongly, up 5.6pc year-on-year in the three months to May. The average price of a property in England and Wales has hit £179,696, accordng to the Land Registry.