With major changes in tax and possible interest rate rises the BOE issues a warning to investors
Bank of England deputy governor Sir Jon Cunliffe who yesterday warned that a rise in interest rates, higher taxes or a fall in house prices could push some landlords to sell their properties. He fears this would send house prices down, posing a risk to financial instability among some banks.
“There is an increasing amount of the housing stock owned by buy-to-let landlords. The question is, how do they behave if they cannot cover their interest payments because rates go up or because of tax changes?” he said at a House of Lords committee hearing on the housing market.
“There could be risks to financial stability because it starts a spiral of house price declines,” he said, which could undermine the banks which have made risky loans.
The average loan-to-value ratio stands at above 80pc for first-time buyers, according to industry group the Council of Mortgage Lenders, indicating they are also taking out increasingly large loans.
Andy Golding, the chief executive of OneSavings Bank, which carries out a modest amount of lending at high loan-to-value (LTV) ratios, said the practice is safe as long as it is carried out carefully.
“We do a small amount of 90pc LTV owner-occupied mortgage lending which in my 30 years of lending has never been excessively risky, if well underwritten,” Mr Golding said.
“Lending is about security, that’s true, but it is always about borrower affordability and track record and only those with the very best of both would get a high LTV loan from us.
“The Wild West days of sub-prime self-certified high LTV loans that some did pre-crunch have thankfully gone.”
Landlords must review their portfolios to determine how sensitive they are to an interest rate rise and the pending tax changes that will impact them.