Mark Carney is worried about the buy-to-let market.
The Governor of the Bank of England told the Financial Times in December that: “We do have to be careful around that [buy-to-let] sector,” adding that the bank “will take action” if things get out of hand.
And just last week Carney told the House of Commons Treasury Select Committee with reference to buy-to-let: “If you see a sharp and sustained increase in an area, particularly one built on debt, it bears heightened scrutiny.”
The FT says Carney and the Bank worry about “the risk that investors would all seek to sell at the same time if there were a general decline in house prices.”
Buy-to-let buyers snap up property with the sole purpose of renting it out. They generally buy houses with special buy-to-let mortgages that aren’t subject to the same kind of affordability tests as regular ones. Buy-to-let mortgages are generally based more on rental income in areas than the buyer’s means.
The worry is that as interest rates finally begin to rise off record lows, buy-to-let landlords will struggle to meet mortgage repayments and all sell-up at the same time. The flood of housing stock on the market could lead to a price crash. Buy-to-let mortgages are near pre-crisis highs, as the chart from the Bank of England below shows, making the stakes even higher.
But it looks like Carney’s worst fear about buy-to-let could come to pass even without an interest rates rise. The Times reports on Wednesday that 500,000 buy-to-let properties could be sold off in the next year alone, followed by 100,000 a year until 2021.
While it’s notoriously difficult to rely on forecasts of what will happen in the future, the figures come from a survey by the National Landlords Association and so are worth noting. The proportion of its members signalling intentions to sell with the next year has jumped from 7% in July to 19%.
The National Landlords Association blames the downturn in confidence on George Osborne. The Chancellor announced last year the end of certain tax breaks for buy-to-let landlords and an increase of stamp duty for those buying new properties.
The Bank of England had hoped these changes would simply cool activity in the sector, stopping anymore risk building up. Martin Taylor, a member of the Bank’s Financial Policy Committee, told the Treasury Select Committee last week: “We are expressing mild concern over buy-to-let. The two tax changes might cool the market without need for macro-prudential intervention.”
But The Times quotes National Landlord Association CEO Richard Lambert as saying: “Two speeches from the chancellor in 2015 have led to a crisis in confidence greater than when all but a few buy-to-let products were immediately withdrawn from the market following the 2007 financial crash.”
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