This article was last updated on April 16, 2022
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A report issued by The Bank of England has pointed out several concerns regarding the mortgage lending in the Buy-to-Let market. The official results of stress testing and financial stability has raised concerns that the number of smaller investors is creating a vacuum and reducing the supply of homes to buy. Consequently, the prices are skyrocketing and soon could be unaffordable when interest rates go up. As of this year, the lending rate is already up by 10% for the first nine months.
Moreover, the report underlined The Bank of England’s warning that the financial risks in Buy-to-Let and commercial real estate “remain elevated.” It was highlighted that “the buy-to-let sector continues to drive growth in the UK mortgage market. Since 2008, the outstanding stock of buy-to-let lending has grown by 5.9% per annum on average, compared with only 0.3% growth in the stock of lending to owner-occupiers.” The report added that “some smaller lenders have loosened their lending policies, for example by raising their maximum LTV thresholds. Strong growth in buy-to-let lending is driven in part by a structural shift in tenure to the private rental sector. But it may have implications for financial stability.”
Furthermore, the report alleged that “new loans to buy-to-let investors are often subject to less stringent affordability tests than loans to owner-occupiers. Assessed against relevant affordability metrics, buy-to-let borrowers may be more vulnerable to an unexpected rise in interest rates or a fall in income, which could exacerbate the scale of a fall in house prices.”
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