The FSA has issued a caution about buy to let as part of a series of product warnings.
Managing director John Tiner says lenders must manage their exposure carefully and borrowers should be wary of over-reaching themselves.
He warns that lenders must take account of potential affordability problems of borrowers looking to fund their investment. This is especially the case in London and the South-east where house prices are highest relative to income.
Tiner suggests that lenders ensure business plans take account of the impact of possible future scenarios and that they look at the overall circumstances of the borrower.
But he says economic factors point to continued demand in the rental sector. “Investors are increasingly turning to the buy-let-market as a source of long-term income and savings, which is an attractive complement to some traditional saving and equity products,” he says.