The government is seeking views on the powers the independent Bank of England should have over the UK’s buy-to-let mortgage market.
The consultation marks the latest step in the government’s plan to ensure the independent Bank of England has the tools it needs to monitor and enhance financial stability in Britain. It builds on the radical reforms the government has already made to the financial supervisory regime since 2010. This includes putting the Bank of England back at its centre and creating the Financial Policy Committee (FPC) within the Bank of England.
The FPC’s responsibility is to identify, monitor and take action to remove or reduce systemic risks so that it can protect and enhance the resilience of our financial system. In the course of carrying out its role the FPC has the powers to recommend that it be granted powers of direction to help it manage potential financial stability risks.
In September 2014, the FPC recommended that it be given additional powers of direction over both the residential mortgage lending market and the buy-to-let mortgage market. These powers would form part of FPC’s macroprudential toolkit – the tools it has at its disposal to head off potential threats to financial stability should they arise.
The government granted the FPC powers over the residential mortgage lending market in April 2015 and promised to consult on buy-to-let powers by the end of this year. This consultation, which includes draft legislation and a full impact assessment fulfils that commitment.
The government is aware of the difference between buy-to-let lending and owner-occupier lending and wants to ensure that any action taken in the buy-to-let market is proportionate, does not place excessive costs on business, and does not unduly restrict business activity.
The consultation offers respondents the chance to comment on how the operation of the UK’s buy-to-let mortgage market may carry risks to financial stability and on new powers of direction for the independent Bank of England regarding buy-to-let mortgages.
The FPC recommended that it be granted the power, if necessary to protect and enhance financial stability, to direct the Prudential Regulation Authority (PRA) and Financial Conduct Authority (FCA) to require regulated lenders to place limits on buy-to-let mortgage lending by reference to:
- loan-to-value (LTV) ratios
- interest coverage ratios (ICRs)
Responses are requested by 11 March 2016.
Chancellor of the Exchequer, George Osborne, said:
Ensuring that Britain’s financial services sector is resilient enough to withstand future shocks is a key part of the government’s economic plan.
That is why the government has radically reformed Britain’s supervisory landscape, putting the Bank of England back at its heart. And it is why we created the Financial Policy Committee with a clear remit to identify and address potential financial stability risks.
Today’s consultation is the next step in ensuring that the FPC has the tools it needs to protect our economy.