FPC consults on new powers over BTL market

The FPC has proposed that it be given the ability to direct regulators to require lenders to place limits on buy-to-let mortgages, by limiting LTV ratios and interest coverage ratios. The Committee would use these powers if it felt that lending in the buy to let market posed a risk to the stability of the mortgage market.

The FPC was given powers to limit risks in the residential mortgage market earlier this year and when launching the consultation into extending these powers over the buy-to-let market, the Treasury stated:

"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 Treasury is asking for responses to the consultation by March 11.

The consultation also notes, when considering the Mortgage Credit Directive rules on consumer buy to let:

"The government’s best estimate is that this new regime will capture around 11% of current buy-to-let transactions. This ensures that the majority of the buy-to-let market remains outside of the scope of conduct regulation," and adds that it believes "regulation should only be brought to bear in areas where there is a clear case for doing so".

However, it adds: "If the definition of a buy-to-let mortgage is not inclusive enough or, over time, other types of buy-to-let lending emerge that are not captured by the legislation, the FPC has the power to make a recommendation to HM Treasury that it widen the scope of either the tool or of the regulatory perimeter."

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."