Buy-to-let boom is threat to stability, says Carney

THE Bank of England has warned that the buy-to-let market poses a growing threat to financial stability, because rising property prices risk exposing vulnerabilities that could magnify a housing market crash.

The Financial Policy Committee, led by Governor Mark Carney, said landlords were more sensitive to booms and busts, buying rapidly when prices rise but also selling properties quickly during a downturn.

It noted buy-to-let mortgage lending had increased by more than 40pc since 2008. “Over the same period, the stock of owner-occupier mortgage lending rose by only 2pc,” it added.

Buying during an upswing was likely to add pressure to house prices and tempt landlords towards taking bigger loans, it said, while a slowdown could prompt faster sales, which would “exacerbate a downturn”.

While the committee said risks from the buy-to-let market were likely to be “contained” in the event of moderate house price falls, it added: “The stock of buy-to-let lending might be disproportionately vulnerable to very large falls in house prices.”

In a statement following its quarterly meeting, the FPC suggested that Britain’s ageing population as well as new pension freedoms could push up buy- to-let lending further in the future.

Mr Carney revealed this month that he was in talks with George Osborne about giving the Bank greater powers to police the buy-to-let market.

Last summer, the FPC introduced regulations designed to prevent the overall housing market from overheating. Banks must now ensure no more than 15pc of residential mortgages are given to people borrowing more than 4.5 times their income and are also required to “stress test” borrowers’ ability to repay loans. The rules do not cover buy-to-let mortgages, which account for a sixth of the market.

However, the Bank of England endorsed the Help to Buy mortgage guarantee scheme (HTB), which uses government support to help home buyers. Mr Carney said the scheme did not appear to have driven a rise in risky lending.

The quarterly report added that China’s economic slowdown is a threat to Britain’s banks and the wider economy because of the risk of turmoil spreading from the Asian powerhouse. British asset managers also have extensive investments in China and other emerging markets, which means savers could lose out from a crash in the country.

The committee said threats from the eurozone and Greece were fading. The latest crisis in the region appears to have passed, according to the FPC.