In a move which was forecast by many experts the Bank of England has again moved to target buy to let investors amid concerns over a “housing market crash” in the future. We have now seen an array of reports prompting a self-fulfilling prophecy from the regulators which are placing yet more pressure on the UK buy to let market. Why is the market being targeted yet again? When will this witchhunt stop?
New regulations
In a direct message to mortgage lenders the Bank of England yesterday confirmed a new strategy which will reduce buy to let mortgage numbers. Lenders will now need to consider not only all direct costs associated with a buy to let investment itself but also the landlord’s wider financial situation which includes living costs and personal tax liabilities. The Bank of England believes this will reduce buy to let mortgage lending by up to 20%.
Is this a witchhunt?
The fact that the Bank of England confirmed that it “had nothing against buy to let investors” took many observers by surprise. It is not very often that the Bank of England is forced to defend its actions against what it deems to be an appropriate risk to an investment market. Even though the Bank of England is an independent body with “no political interference” this policy does seem to synch well with that of the current government and opposition politicians.
Let’s not forget the forthcoming 3% increase in stamp duty for those investing in second homes and buy to let properties. So, what next?
Warning about pension funds
At this moment in time investors aren’t able to invest in residential property using pension funds. Therefore, using new government regulations, a number of those with access to the pension funds have withdrawn the maximum amount and used this to gain a foothold in the buy to let market. The Bank of England, in a rather blunt statement, has suggested that a future house price crash could leave some people with reduced funding in their retirement if they continue to ignore traditional pension investments.
Even though there may be some truth in the recent Bank of England analysis of the UK property market, and the influence of buy to let investors, will the scare tactics around pension funds backfire?
What about the future?
In theory there is nothing wrong with the Bank of England looking to protect the UK property market especially when you bear in mind the billions of pounds invested by domestic and international investors. However, the UK government created the recent surge in buy to let investments after announcing an increase in stamp duty from April. To now turnaround and use this surge as a means to further tighten market regulations seems a little bizarre.
Amidst the hustle and bustle of constant criticism and attacks on the buy to let market, let’s not forget the chronic shortage of housing in the UK. Surely the time of governments, regulators and investors would be far better spent planning how to tackle the U.K.’s shortage of new builds?