Buy-to-let bubble could burst

Following last month’s newswire which reported that buy-to-let (BTL) mortgage deals were at a seven-year high, the Bank of England has warned that this boom potentially poses a risk to the UK’s economic stability.

The Bank’s Financial Policy Committee (FPC) warned that landlords, typically funded through interest-only loans, could be “disproportionately vulnerable” to large falls in house prices and could in turn amplify any future property downturn.

Data shows buy-to-let mortgage lending has risen by 40 per cent since 2008, 20 times faster than owner-occupier loans. In the same period, the buy-to-let share of the market has risen from 12 per cent to 16 per cent with more people than ever before renting privately.

This concerns policymakers because a continued increase in the market risks pushing up house prices further, meaning more borrowing and greater household debt. If landlords see their loan repayments starting to exceed their rental income, they may respond by selling their property, resulting in an accelerated downturn in the property market.

Link: Financial Policy Committee