Banks braced for new curbs on buy-to-let boom with potential clampdown on risky lending
11-30-2015
By Simon Watkins, Financial Mail on Sunday
Banks are braced for a fresh squeeze on their business this week as the Bank of England unveils the results of its latest stress tests and experts warn of a potential clampdown on risky lending.
Analysts claim renewed pressure on banks could constrain their ability to pay dividends – and may deal another blow to the buy-to-let market.
The Bank of England’s powerful Financial Policy Committee may be on the brink of announcing curbs on new lending including on buy-to-let mortgages.
Sign of things to come: Buy-to-let has already been identified by Bank of England chiefs as a particular area of risk in the economy
Buy-to-let has already been identified by Bank of England chiefs as a particular area of risk in the economy.
Chancellor George Osborne last week imposed an extra 3 per cent on stamp duty on buy-to-let home purchases in an attempt to take the heat out of the booming sector.
Alongside the latest views of the FPC, the Bank of England will release the results of stringent stress tests designed to gauge whether banks have large enough capital buffers to weather fresh economic deterioration.
All of the banks are expected to pass the tests – under which they must calculate their likely losses in the event of a downturn – but analysts warn that the pass margin will be tighter than last year for many.
The Bank has already said it plans to raise the level of capital buffers that banks will require in order to pass future tests, which could affect the payment of dividends.
Analysts at Berenberg bank said in a research note issued last week that they expect the Bank of England to also increase so-called counter-cyclical buffers – extra capital reserves it can require
banks to build up during lending booms in order to protect against a bust.
They also predict the possible introduction of specific measures aimed at discouraging landlords from adding to their portfolios of bricks-and-mortar investments.
The extra 3 per cent stamp duty on buy-to-let buyers announced in last week’s Autumn Statement will add more than £5,500 to the cost of the average £185,000 buy-to-let property. The move was met with fury by the National Landlords Association which warned that the increase could stifle the private rental sector.
Critics of the buy-to-let boom have argued that it is driving up property prices and putting home ownership out of reach for a generation of first-time buyers.