CML warns policymakers of potential risks to private rented sector

The Council of Mortgage Lenders (CML) has stated that, in its view, the buy to let sector does not constitute a market that needs further intervention from policymakers, and predicts that buy to let market activity will fall in 2016 and 2017.

In response to the consultation launched by the Bank of England this week regarding the potential powers of direction the Financial Policy Committee (FPC) should have over the buy to let market, the CML urged caution.

Paul Smee, director general, CML said:

“We understand the rationale for putting the macroprudential tools at the Bank of England’s disposal, but also recognise that this does not necessarily mean they will be used.

“In our view, buy-to-let does not constitute a market that currently requires further macroprudential intervention, especially as the effect of several recent tax changes is yet to be fully felt and evaluated.

“We urge policymakers to be mindful of the risk of unintended consequences that could adversely affect the private rented sector, alongside their focus on ensuring that the buy-to-let market does not pose a threat to financial stability.”

In its report ‘Market Commentary: 2016 and 2017’, also published this week, the CML warns that

‘buy to let faces a challenging period, as changes to tax treatment and the prospect of macro-prudential intervention run counter to otherwise strong fundamentals. Buy-to-let house purchase activity in 2015 may peak and fall away below 2014 levels by 2017.’

The uncertainty surrounding buy to let is said to stem from: the incoming tax changes from 2017, the recently announced stamp duty changes and the possibility of macro-prudential regulations by the FPC.

The effects of which, the CML believes, will negatively impact the rate of growth in the sector and cause lending volumes to ease back.

The CML also noted in its report that while buy to let borrowers may be more vulnerable than owner-occupiers to unexpected rises in interest rates, or a fall in income, the evidence for this remains thin.

The fact that the FPC continues to be watchful over the sector as a whole, indicates that the FPC is looking for buy to let underwriting criteria to tighten further in the near future, the CML believes.

Raising concerns for the Private Rented Sector (PRS), the report states,

‘the impact of the Chancellor’s announcement in the Autumn Statement on stamp duty changes for buy-to-let properties appears at odds with the increasing demand for housing in the private rented sector. Given demographic changes, this will pose a challenge for the government in the future to meet housing needs in the PRS.’

As a consequence of the changes, the CML predicts higher activity levels in the first quarter of 2016 as some landlords bring forward purchases to avoid the stamp duty hike before it comes into effect.

While the

‘scale in terms of transactions is likely to be in the low thousands, though the overall impact will be close to zero over 2016 as there will probably be a corresponding fall in transactions in subsequent quarters,’

stated the report.