BOE granted new powers over UK landlord mortgages

[LONDON] The Bank of England has been granted the ability to limit borrowing by investors in rental housing, increasing the central bank's control over the property market.

The BOE's Financial Policy Committee has been given new powers to cap buy-to-let mortgage lending by regulating loan-to-value and interest coverage ratios, the UK Treasury said in a statement on Wednesday.

UK benchmark interest rates, at record lows for the past seven years, have fueled home price gains in Britain. Governor Mark Carney has said the central bank will closely monitor investment in housing because any decline in house prices could be amplified by investors selling rentals, particularly when interest rates rise and make leasing less profitable.

London's housing market is facing a "major shock" as private investors offload properties because tax increases introduced this year will cut returns on their investments to near zero, Deutsche Bank analysts Oliver Reiff and Markus Scheufler wrote in a report in June.

"It is crucial that Britain's independent regulators have the tools they need to keep our financial system as safe as possible," Chancellor of the Exchequer Philip Hammond said in the statement. "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." Specialist buy-to-let mortgage providers fell in London trading, along with other lenders. Aldermore Group Plc dropped 0.8 per cent, and Shawbrook Group Plc dipped 0.5 per cent. That compares with a 1.4 per cent decline for the FTSE 350 Banks Index.

Wednesday's move comes after former Chancellor George Osborne increased the stamp-duty tax paid by investors on property purchases earlier this year amid fears landlords were pushing up house prices and driving away first-time-buyers. It also comes after rules introduced in 2014 for owner-occupiers required borrowers to prove they can afford to make payments even under higher mortgage costs.

In September, the PRA - the UK's main banking supervisor and part of the central bank - announced how it expects lenders to test affordability for buy-to-let property investors. It wants banks to take into account borrowers' tax liabilities, verified personal income and possible future interest-rate increases.

BLOOMBERG