UK Regulator Warns of another Buy-To-Let Clampdown
FCA Considering Tighter Buy-to-Let Controls
Financial Conduct Authority could follow its cousin at the Bank of England in setting stringent lending criteria in another clampdown on buy-to-let investments (BTL), this time relating to smaller, non-bank lenders.
According to Sky News, the Financial Conduct Authority’s (FCA) director of retail lending, Philip Salter, has contacted firms that lend to prospective landlords but are too small to come under the range of the Bank of England’s Prudential Regulation Authority (PRA).
In a letter, he warned the FCA was considering intervening in the market, which has been booming in recent years.
Under a “twin peaks” regulatory structure that came into force in 2013, the Bank of England, through the PRA, has taken back responsibility for overseeing the main lending activities of large banks and building societies.
Alongside this, the FCA keeps a check on all aspects of financial firms’ conduct, including how banks deal with their customers, and solo-regulates smaller firms, including non-bank lenders.
In March, the PRA published proposals to tighten up on buy-to-let, which it fears represents a systemic risk to the property market. This included affordability checks for borrowers based on a “stressed” base interest rate of 5.5%.
However, these rules, which are set to be confirmed in September, would not automatically apply to FCA-regulated lenders. Buy-to-let loans also escape most of the authority’s consumer credit regulations.
“There is a risk that poor standards of lending could emerge in firms that would not be subject to the PRA’s proposals”, Salter told the lenders. “We will actively monitor the non-bank lending sector of the BTL market to ascertain whether we need to intervene to advance our operational objectives”.
Trade bodies for landlords have complained that the sector has come under siege thanks to a range of onerous tax changes and a change in attitude from banks, which have already begun to apply more stringent criteria in relation to rental cover.
From next year, a significant change will see tax relief on mortgage interest phased out, which will double the tax bill for higher-rate taxpayers and push some landlords into annual losses.