The buy-to-let market, the bank and the government
Rapid growth of the buy-to-let market
The buy-to-let market has experienced astonishing growth over the past 15 years as people look to capitalise on cheap finance and rising house prices. Add to this stock market volatility and a general distrust of pensions and you have a perfect storm for the market to boom.
In 2000, just 4 % of mortgage lending was for buy-to-let properties. Today this figure is just shy of 16%. The British public has embraced the security of bricks and mortar with many seeing second homes as a pension pot for retirement.
The Bank of England is worried
So why has this got Mike Carney worried? The short answer is financial stability. A longer explanation is that the bank is worried that there are a lot of buy-to-let landlords all just about covering their year on year costs. These landlords are banking on (no pun intended!) the housing market continuing to rise so they can eventually sell at a profit. If, however, there was some form of economic shock, the fear is that all of these landlords could look to sell up en masse. This would create a very painful crash that would be felt across the economy.
So what is the bank doing?
The bank wants to introduce tougher lending controls that strengthen the criteria of buy-to-let mortgages. Currently, if rentals are higher than mortgage repayments potential applicants are a long way down the path to getting a green light on their borrowing. In future, the bank wants all the other costs of owning a property, such as maintenance, to be taken into consideration.