BOE Concerned about Buy-to-Let Mortgages

The Bank of England is concerned that the buy-to-let mortgage market and the economic slowdown in China could pose a threat to the UK’s banking system.

Policymakers are scrutinising the booming buy-to-let sector for any moves by lenders to make it easier for would-be landlords to obtain loans. They are also concerned that a rapid fall in house prices could force landlords to sell their properties, exacerbating the decline.

The Bank said the “downside risks” to stability have increased since July and pointed to the market volatility sparked by gyrations on the Chinese stock market in August, highlighting so-called Chinese Black Monday when the FTSE 100 index of leading stocks lost more than £60bn. It is commissioning analysis on such contagion and impact of computer trading strategies.

In its quarterly update on potential risks to the financial markets, the bank said it was not taking any immediate action to cool the buy-to-let market, where the mortgages are usually riskier interest-only loans. But it said it was looking at whether the buy-to-let boom could magnify falls and rises in house prices.

The Bank published data showing that buy-to-let mortgage lending has increased by more than 40% since the 2008 banking crisis, while owner-occupied lending has increased by 2% over the same period.

“Buy-to-let mortgage lending has the potential to amplify the housing and credit cycles, though the extent of the amplification is hard to judge because the market has only recently grown to significant levels. Any increase in buy-to-let activity in an upswing could add further pressure to house prices,” the financial policy committe (FPC) said. “Buy-to-let investors may further exacerbate a downturn if they expect rental incomes to fall below their interest payments, and consequently add to selling pressure,.”

Via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza