By Jonathan Davies
The UK’s buy-to-let market could threaten the stability of the UK economy, the Bank of England has warned.
The central bank warned that with better access to credit, borrowers could be putting themselves at risk by investing in buy-to-let houses.
“Looser lending standards in the buy-to-let sector could contribute to general house price increases and a broader increase in household indebtedness,” the Bank said.
“In a downswing, investors selling buy-to-let properties into an illiquid market could amplify falls in house prices, potentially raising losses given default for all mortgages.”
The Bank also warned that the risks could be increased as it prepares to raise interest rates from their record low of 0.5%, increasing borrowing costs.
“This could be a particular concern in a rising interest rate environment, if properties become unprofitable given higher debt-servicing costs.
“Buy-to-let borrowers are potentially more vulnerable to rising interest rates because loans are more likely to be interest-only and extended on floating-rate terms, and affordability tends to be tested at lower stressed interest rates than owner-occupied lending.”