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Financial Policy Committee continues to monitor buy to let sector

The Bank of England (BoE) has advised that the Financial Policy Committee (FPC) will continue to monitor behaviour in the buy to let sector and will maintain the Recommendations it made in June 2014 to insure against the risk of loosening in underwriting standards in the owner-occupier mortgage market.

In its Financial Stability Report published today, the Bank of England states that while buy to let transactions have slowed in recent months, there is no evidence yet of a widespread sell-off by investors that would be associated with a softening of the market.

This is in spite of measures introduced by the government this year, such as tax relief restrictions and the 3% stamp duty surcharge on buy to let properties and second homes, which are expected to impact the buy to let market.

According to the Bank of England, the buy to let sector has expanded steadily over the past fifteen years, with the stock of outstanding buy to let mortgages growing from less than £10 billion in 2000 to over £220 billion in Q3 2016.

The number of buy to let properties listed for sale since the referendum is in line with levels seen earlier in 2016 and in 2015.

In today’s report, the Bank highlights the fact that the FPC’s assessment of the UK buy to let market is in line with ‘the identification of risks by other international bodies’ and cites the assessment of housing market vulnerabilities as published by the European System Risk Board (ESRB).

The United Kingdom was one of eight EU Member States to be issued a warning as part of the ESRB’s assessment, and the risk channels identified by the organisation were consistent with those already identified by the FPC.

According to the BoE’s report, the International Monetary Fund (IMF) was another body to identify financial stability risks from UK household indebtedness in its 2016 Financial Sector Assessment Programme for the United Kingdom.

Both the ESRB and IMF acknowledged that the FPC has taken action to mitigate risks from household indebtedness, and concluded that the UK authorities should continue to monitor developments closely and be prepared to adjust macroprudential policy as necessary.

As such the Financial Stability Report states that the FPC has agreed to uphold the Recommendations it made in June 2014 in order to insure against the risk of relaxed underwriting standards and the rise in the number of highly indebted households, which pose a threat to the financial stability of the UK economy.

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