Brokers urge caution on FPC buy-to-let powers

Brokers say the granting of new buy-to-let powers to the financial policy committee has become “inevitable”, but warn any intervention will risk damaging those seeking to rent.

Chancellor George Osborne told the Treasury committee last month the Government is “in the process” of granting powers to the FPC to intervene in the buy-to-let market.

The Treasury currently only allows the committee to cap loan-to-income ratios and loan-to values in the residential market.

The comments come despite Treasury promises of an autumn consultation on the potential for new powers, which Osborne suggested would chiefly be considering “how they have those powers”.

Association of Mortgage Intermediaries chairman Pat Bunton says he expects policymakers to grant the FPC powers to implement a cap on LTVs, at least as a starting point.

He says: “The Chancellor wants to have his hands on as many levers as he can as regards to house price inflation.”

However, Bunton says moves by the Treasury must also take into account existing plans to change tax reliefs on mortgage interest for landlords.

“We need a strong private rental sector, given the housing issues we are facing. We don’t really want to undermine confidence in the sector.

“If you start making it more difficult to obtain a mortgage, then you are hurting that strong rental sector.”

The Buy to Let Business managing director Ying Tan says: “If they put in a cap, that means it will be less affordable for landlords.

“It’s going to be harder to buy properties which is to some degree what the Government wants –to create more opportunities for first-time buyers.

“Some brokers will suffer but if one door shuts, then it tends to be that another one opens, and it will push them into residential.”

Tan adds the majority of buy-to-let business is around 75 per cent LTV, and any cap must be both  realistic and designed in consultation with the industry.

“If they go to a 70 per cent cap, it could really disrupt business,” he says.

Tan says he remains convinced rapid increases in the numbers of buy-to-let mortgages remain sustainable.

“A lot of it is remortgaging. People are coming out and starting to refinance anyway from standard variable rates, so I don’t think its necessary but we accept that it’s coming.”

Buy-to-let specialist 3MC director Doug Hall describes the potential for new FPC powers as “Government meddling”.

“There are some noises being made over a shortfall in housing, so the private rental sector is serving a purpose because we are not building enough. So Osborne needs to be careful that he doesn’t compromise what private landlords are providing to the market.”

But GPS Economics director Gary Styles says while much remains uncertain as to how the FPC will be able to act, the award of greater powers is difficult to attack, given the need to maintain a stable sector.

“We need the regulator, in this case the FPC, to have as many levers as they need to avoid the excesses of the past.

“There has been a great deal of talk about concerns on some of the lending practices in this sector for some time.

“If something really seriously goes wrong, the impact on the wider market could be considerable, hence  the need to be ready to take action.”

Mortgages for Business managing director David Whittaker argues the Chancellor is keen for the FPC to have powers to intervene at a future date rather than in the short-term.

“While I wouldn’t welcome the FPC stepping into the market without good reason, it doesn’t make sense for them to be unable to act when they need to.

“One has to imagine if they are talking about some sort of LTV cap that it’s going to be at the 80 per cent market and over, where there’s very little product.

“It wouldn’t impact most. There would be serious howls of protest, but the substance of the reality will be much less than is perceived.

“They would start cautiously. The threat of doing something would encourage better behaviour, rather than an actual punishment.”

Timeline

October 2014: The Treasury announces plans to consult on whether to implement loan to value caps in buy-to-let.

February 2015: The Financial Policy Committee handed the power to restrict LTV levels in residential mortgages.

July 2015: The Bank of England warns expansion of buy-to-let market puts UK’s financial stability at risk. Chancellor George Osborne subsequently announces plans to restrict mortgage interest relief to landlords.

September 2015: The FPC says there is “no cause for immediate action” in buy-to-let.

October 2015: Osborne tells the Treasury committee he plans to hand FPC buy-to-let powers.