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CML warns against further buy-to-let changes

The Council of Mortgage Lenders (CML) has warned against further intervention in the buy-to-let market as the forthcoming tax crackdown looks set to slow growth in the sector.

It said that landlords have yet to absorb the effects of a series of tax changes that are likely to have significant implications for the private rented sector.

The CML’s response to the Treasury’s consultation on buy-to-let powers accepted that there must be robust macro-prudential regulation of the mortgage market, including buy-to-let.


But it said that buy-to-let makes up just 18% of total lending while only a third of privately rented properties are currently financed by a buy-to-let loan.

The remainder are owned outright, or are funded by a commercial mortgage, a business loan or through institutional investment.

Bernard Clarke at the CML said that buy-to-let borrowers are a diverse group and regulators must be careful about adopting a "one-size-fits-all" regulatory approach, which could affect some parts of the market more than others. 

He warned that proposed powers would allow the Financial Policy Committee to impose limits on buy-to-let LTV ratios, and the interest cover ratio, which assesses rental income relative to the cost of the mortgage.

Clarke said: “In recognising the over-riding need for the FPC to have at its disposal all necessary macro-prudential tools, our submission argues that any decision to apply them is a much bigger step.

“We believe that they should only ever be used with great sensitivity, and preferably only after consultation and the publication of analysis and assessment of the likely effects.”

He said the sharp contraction in buy-to-let activity as a result of the financial crisis was primarily driven by the collapse of the global securitisation markets upon which many buy-to-let lenders then relied.

“This pattern is unlikely to be repeated now that lenders have more varied, stable and reliable funding options.”

He said there had been a modest decline in the number of loans advanced at higher LTVs over the past two years, despite the buoyancy of the buy-to-let market.

“The forthcoming tax changes could reinforce this trend.”

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    I have heard a lot about the tax changes and how they will benefit the market and how they will have little or no effect.

    I am somewhat disturbed, I feel that especially with clause 24, most landlords have yet to realise the effects of the changes.

    I know a lot of landlords that work on the margins with their portfolios. They have them, not to make a living today, but to build up a nest egg for their future retirement. It is these landlords that will be greatly affected.

    If you are operating a package of properties and you just make enough to tick over but are still in a high rate of tax, due to alternative income such as a full time job, once you are no longer able to claim the higher rate of relief on your mortgage interest you will suddenly and quite dangerously switch to loss.

    I am very concerned that when this happens a large amount of landlords will suddenly realise that they are "sat in an abattoir" but by this time it will be too late.


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