The Financial Stability Report, released yesterday, claims strong growth in the buy-to-let lending has been driven by an increase in demand for rented property caused by a number of factors, including potential first time buyers struggling to raise a deposit and immigration.
Figures show that in the year to 2015 the stock of buy-to-let lending rose by 10%, compared to 4% for owner-occupiers.
The report said: “Since 2008 the outstanding stock of buy-to-let lending has grown by 5.9% per annum on average, compared with only 0.3% in the stock of lending to owner-occupiers.
“The total flow of buy-to-let lending in 2015 will be close to its pre-crisis peak if it continues to grow at its current rate.”
However the Bank has warned that strong growth in the buy-to-let mortgage market “may have implications for financial stability”, claiming that that affordability tests for new buy-to-let mortgages are often less stringent than those for owner occupiers.
It says that this makes them vulnerable to unexpected increases in interest rates or falls in inflation.
It said: “The buy-to-let sector continues to drive growth in the mortgage market. Greater competition in this sector has not, to date, led to a widespread deterioration in underwriting standards of UK banks. Nevertheless, strong growth in buy-to-let lending may have implications for financial stability.”
The Bank of England has now pledged to closely monitor developments in the sector following the Chancellor’s recent tax changes. It also notes that it expects the Treasury to publish, before the end of the year, a consultation on giving the Bank the same powers to direct buy-to-let mortgages similar to those they have for owner occupiers.
The full report is available at http://www.bankofengland.co.uk/publications/Documents/fsr/2015/dec.pdf.