The Treasury is to give the Bank of England powers to limit lending to the growing buy-to-let mortgage market to protect the financial system.
News powers for the Bank of England’s Financial Policy Committee will allow it to regulate the loan to value (LTV) ratios offered by lenders to buy-to-let landlords.
There will also be limits on the size of loans in relation to rental incomes to cover interest payments to lenders.
The Bank has been concerned that the buy-to-let market could undermine the housing market as landlords are more likely to sell in a downturn increasing the impact on homeowners.
Fewer first time buyers
There has been continued pressure on first time buyers with the expanding buy-to-let market and home ownership in England has reduced from 71% in 2003 to 64% today.
With for competition and reduced supply of suitability properties for home movers means more remortgage buyers remaining in their existing home.
This has been worse for younger people aged 25 to 34 where homeowners have reduced from 59% to only 37% over the same period.
Help for first time buyers can come from family members as the equity release buyer can access wealth using a lifetime mortgage to buy a more expensive home, home improvements and holidays.
From April 2016, the former Chancellor George Osborne increased Stamp Duty Land Tax (SDLT) for new buy-to-let properties by an extra 3% on the whole purchase value and this will also apply to people buying a second home.
The following table shows how this has changed:
| Property values | Standard rates | Buy-to-let rates |
|---|---|---|
| Up to £125,000 | 0% | 3% |
| £125,000 – £250,000 | 2% | 5% |
| £250,000 – £925,000 | 5% | 8% |
| £925,000 – £1.5m | 10% | 13% |
| over £1.5m | 12% | 15% |
For residential properties, up to £125,000 the SDLT is zero but for landlords the new tax is 3% or an extra £3,750 to level the playing field for first time buyers.
With competition from buy-to-let investors and reduced supply of suitable properties, home movers are remaining in their existing home and saving for a bigger deposit.
Buy-to-let lending much lower
Data from the Council of Mortgage Lenders (CML) shows the number of new loans for buy-to-let mortgages has reduced by 42.3% over the year from 11,100 in September 2015 to only 6,400 this year.
Since the changes in Stamp Duty in April the quarterly figures are also significantly lower reducing from 33,500 in the second quarter to 18,900 in the third quarter.
In terms of value this has reduced from £4.5 billion in the second quarter to £2.8 billion in the third quarter mainly due to the government changes to Stamp Duty.
The Bank also made changes in 2014 to the residential mortgage market by preventing lenders from allocating more than 15% of their loans to homeowners borrowing four-and-half times their income.
The Chancellor Philip Hammond has said, Expanding the number of tools at the financial policy committee’s disposal will ensure that the buy-to-let sector can continue to make an important contribution to our economy, while allowing the regulator to address any potential risks to financial stability.
What are your next steps?
Call our LCM mortgage brokers if you are a buy-to-let landlord with a property, remortgaging and want the best mortgage deal, buying your first home or you are planning to move home.
Learn more by using the mortgage cost calculators, property value tracker chart and equity release mortgage calculator. Start with a free mortgage quote or call us and we can take your details.
For equity release buyers our London City Mortgage advisers can recommend lifetime mortgages allowing you to receive cash from your home to spend on anything or even benefit a family member.
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