Mortgage chiefs warn against lending restrictions "damaging" Buy To Let

The Council for Mortgage Lenders is warning the government not to interfere with the Buy To Let sector in such a way that it leads to "cumulative, unintended and damaging consequences."

In a lengthy and detailed research document the CML says that over the last 15 year Buy To Let has made an important contribution to the expansion of the private rented sector and "helping to reverse many decades of decline." 

But it says that at the moment there is uncertainly over the impact of proposals concerning tax, regulation and mortgage availability for the private rented sector.

"Lenders do, of course, accept that regulatory authorities must have the right tools to address any macro-prudential risks. But we urge the government and other authorities to consider the effects of uncertainty on the market and, in particular, the potential for a series of reforms to have cumulative, unintended and perhaps damaging consequences" says a statement from the CML.

The Treasury is known to be starting a consulation process later this year on possible buy to let mortgage restrictions, which were not considered in the spring 2014 Mortgage Market Review.

A statement from the Bank of England during the summer stated: “The actions of buy to let investors affect the broader housing and mortgage markets as individuals compete to buy the same pool of properties. Looser lending standards in the buy to let sector could contribute to general house price increases and a broader increase in household indebtedness. 

“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.”

Now the CML is warning against damaging interference. Aside from the open-ended possibility of mortgage restrictions for borrowers wishing to buy investment properties, the sector has two specific challenges - both addressed in the CML statement.

From March next year there will be greater regulation of what the Bank of England calls ‘consumer buy to let’ - including accidental landlords letting out homes on the sales market awaiting buyers, for example. 

The CML warns that because of this “some lenders, particularly small and medium-sized firms, may be cautious about offering consumer buy to let mortgages. One consequence may therefore be that consumers wanting to take out buy to let loans will have a narrower choice in the market, particularly in the short term.”

Another challenge is of course the highly controversial decision by Chancellor George Osborne to taper tax relief for buy to let borrowers to the basic rate of tax - this starts in April 2017 and will take three years.

The CML says of this: “The measures are likely to deter some landlords from expanding their portfolios, and may encourage others to reduce their property holdings. They could also lead landlords to seek to increase rents to cover some of their additional tax liabilities. Overall, the extent to which the measures may discourage future growth of buy to let and the private rented sector is unclear."