It asks them to consider whether the new powers may be both ‘burdensome and unnecessary’ at a time when several other changes – affecting Stamp Duty, tax and possible reform to Basel 3 capital requirements – mean the BTL market will be adapting to new regulations for the next decade at least.
IMLA also suggests current evidence points to the BTL market carrying a lower risk to financial stability than the mortgaged homeownership market, and those risks may be ‘overstated’: making it ‘premature’ to award the FPC powers of direction when it already has powers of recommendation.
Instead, IMLA proposes the FPC should exercise its existing power of recommendation if it becomes convinced that the BTL market poses a potential risk before any further regulatory extension is considered, which would otherwise send market messages which are ‘out of line with reality’.
Impact on the private rental sector
The IMLA response points out that the BTL mortgage market is only one part of the overall BTL market which is itself only one part of the private rental sector (PRS). The Government’s concerns with competition between landlords and homeowners – and any impact this may have on prices and market stability – will not be solved simply by imposing new regulation on BTL mortgages.
It also suggests the wider PRS has grown in response to population growth and change, labour market change, the new realities of the mortgage market and the well-known failings of the housing market – high prices and low supply. IMLA warns that the proposed powers to set loan to value (LTV) and interest coverage ratio (ICR) limits could reduce the availability of housing in the PRS for the growing number of households who either cannot or choose not to buy.
Any significant reduction in supply to the PRS will drive up market rents – adding materially to inflationary pressures and reducing the amenity of the housing stock in the PRS.
Peter Williams, Executive Director of IMLA, comments
“Clearly any market has the potential to carry risks to financial stability, and the FPC is right to remain vigilant. However, our overriding concern is that the evidence to date falls far short of explaining the need for further BTL regulation, not least with the market already facing significant change.
“These proposals should not be mistaken for a silver bullet to solve the problems of the UK housing market; in fact, a weakened private rental sector will only add to the pressure on rents at a time when population growth is driving demand.
“Though we have seen a rise in BTL lending in recent years, it is still below the levels seen before 2007 and around 50% of that growth is re-mortgaging as the market matures. Should the new powers be granted, it would make considerable sense for the FPC to set all of its measures wide in the initial implementation with the option to tighten when clearer evidence of the ‘real’ situation emerges.”
A full copy of the IMLA consultation response is available on request.
For further information please contact:
Maham Uzair / Will Muir, Instinctif Partners
Tel: 0207 427 1422 / 29 / firstname.lastname@example.org
Notes to Editors
The Intermediary Mortgage Lenders Association (IMLA) is the trade association that represents mortgage lenders who lend to UK consumers and businesses via the broker channel. Its membership unites 39 banks, building societies and specialist lenders, including 17 of the top 20 UK mortgage lenders responsible for more than £200 billion of annual lending.
IMLA provides a unique, democratic forum where intermediary lenders can work together with industry, regulators and government on initiatives to support a stable and inclusive mortgage market. Originally founded in 1988, IMLA has close working relationships with key stakeholders including the Association of Mortgage Intermediaries (AMI), UK Finance and the Financial Conduct Authority (FCA).