The UK government is to consult on plans to give the financial policy committee of the Bank of England new powers to curb the buy-to-let market.
The proposals, put forward in September 2014 and approved by the government in April this year, seek to create a more stable financial climate through restricting lending within the buy-to-let market.
The FPC has proposed that it should be able to direct regulators the PRA and FCA to intervene in the residential mortgage market with reference to LTV ratios and debt-to-income ratios.
The consultation will look to gather views on the systemic risk of the BTL market and any tools it may use to direct the market.
Aimed primarily at individuals, the consultation will also seek to gather information on how any of the proposals will affect business activity and prosperity.
The FPC believes that the credit risk of BTL mortgages are higher than any other property debt, which is the largest single asset class on banks’ balance sheets.
As the BTL market is therefore at greater risk to large-scale price movements owing to its predominantly debt-heavy and non-amortising nature, arrears and negative equity are often amplified in the sector when property prices move adversely, says the FPC.
It adds that curbs on BTL lending is intended to smooth the swings the market could cause to house prices and the general economy.
