Treasury sidesteps Bank of England buy to let plans

The UK Treasury is not rushing into action following a request for greater control over buy to let lending from the Bank of England.

According to a consultation paper, the Treasury has said it wants time to gather more evidence relating to how the buy to let market works before any rules are imposed.

Current proposals will see the Bank of England’s Financial Policy Committee (FPC) gain new legal tools to control residential lending – with the Bank able to set mandatory limits on loan-to-value ratios and debt-to-income ratios.

Initial plans will see the consultation run until 28 November with possible legislation being introduced in May 2015.

As far as the buy to let market is concerned, the Treasury has said it wants “an in-depth evidence base” before deciding if the FPC should have similar powers over the market.

Due to the decision to delay buy to let powers, any new rulings are unlikely to occur before the general election next May.

This means that buy to let investors and current landlords are unlikely to face regulations should they wish to expand their portfolios in coming months.

Financial stability is the focus of any potential changes which is why the Bank has requested greater powers – keen to speed up the amount of time needed to respond to housing risks.

The FPC can currently make recommendations to limit risky lending and said in June that no more than 15 per cent of a bank’s mortgage lending should be at more than 4.5 times the borrowers’ incomes.

In the statement requesting greater powers over buy to let lending, the FPC described it as a “significant potential amplifier of housing and credit cycles”.

It also added that the potential effectiveness of the tools relating to other parts of the market may be limited if buy to let is not included.

“Ensuring the stability of the UK housing market is a crucial part of this government’s long-term economic plan, and I have been clear that the independent Bank of England should have the tools it needs to do this,” said Chancellor George Osborne.

“That is why the Government is consulting on this issue, to ensure that we can bring forward appropriate legislation to give the bank the powers it needs.”

Please read another of Jeni's articles about regulation surrounding the Buy to Let market.

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