Lenders in the buy-to-let market need to manage exposure and borrowers should be wary of overreaching themselves, warned John Tiner, managing director of the Financial Services Authority, at the recent Council of Mortgage Lenders’ annual conference.
He said: ‘It is important lenders take account of potential affordability problems for the investor borrowing to fund this type of investment, especially in areas of particular risk such as London and the South East, where there is a concentration of buy-to-let.’
He also pointed out house prices in this area are the highest relative to income and loans are at the highest income multiples so buy-to-let purchasers are buying out of this same heated housing pool, meaning they may be paying over the odds for property.
He warned: ‘We would not wish to see a relaxation of the loan to value or rental cover without lenders first making a clear analysis of the risk. In the event of a downturn in the market all lenders should be monitoring this part of their portfolio carefully.’
Tiner also said that although property investment has outperformed other investment areas in recent years, historically stock markets have done better, and those looking to buy-to-let as a pension provision may face liquidity problems when selling.
He said: ‘Investors should be clear sighted about the possible difficulties they may face in cashing in their property investment in the event of a weak market.’