BoE permitted to curb buy-to-let mortgages

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The Treasury has given the Bank of England (BoE) new powers to control buy-to-let mortgages, says a November 2016 article from The Independent.

The Bank’s Financial Policy Committee will be

able to fix the ‘loan-to-value’ rate and the ‘interest coverage ratios’.

The loan-to-value is the percentage of a property’s value that a landlord can borrow on the mortgage. The interest coverage ratios involve an assessment of the amount of rent the landlord needs to charge to cover mortgage payments.

The Chancellor Philip Hammond said:

“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.”

The government has increased landlords’ costs recently by upping stamp duty and reducing mortgage tax relief. Mark Alexander, writing for landlord-oriented website Property118 in November 2016, believes that although changes have affected landlords’ profitability, they will continue to invest. He says that this is because demand for rental accommodation is high, low-interest rates are available on commercial mortgages and plenty of people are renting. He believes that, for all these reasons, there are still gains to be made through buy-to-let property investing.

The latest figures from the Council for Mortgage Lenders (CML) show that there are 1.8 million buy-to-let mortgages, which represent 17% of the value of all homes. However, though the market remains a buoyant one, the number of buy-to-let mortgages has fallen this year.

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