Bank of England warning on buy-to-let
The Bank of England has warned that buy-to-let lending could pose a risk to UK financial stability, as investors compete to buy the same pool of properties.
According to the Bank, looser lending standards in the sector could contribute to general house price increases and a broader increase in household indebtedness. And in a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices – this could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs.
In its latest financial stability report, the Bank points out that 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. In addition, affordability tends to be tested at lower stressed interest rates than owner-occupied lending.
In the year to the end of March 2015 the stock of buy-to-let lending expanded by 8% and UK buy-to-let lending now accounts for 15% of the stock of outstanding mortgages.