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FPC must demonstrate BTL harm before pulling macro-prudential levers – CML

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  • 21/03/2016
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FPC must demonstrate BTL harm before pulling macro-prudential levers – CML
The CML says it is largely in favour of staving off consumer risk by harnessing macro-prudential tools to control the buy-to-let market, but warns the regulator must present ‘strong evidence’ first.

The Council of Mortgage Lenders (CML) added that regulators should also only react if confident regulation would tackle the particular risk identified.

It said: “While recognising that there is sometimes a need for regulators to act quickly, we believe that in other circumstances they should go through a process of consultation and carry out cost-benefit analysis and a regulatory impact assessment.”

In a response to the Treasury’s consultation on buy-to-let (BTL) powers of direction for the Financial Policy Committee (FPC), the CML does not recognise that the landlord sector is in aggregate more risky than prime residential.

The trade body said its members accept robust regulation of the whole mortgage market is needed, including buy to let.

It added: “But on their behalf we urge caution over the cumulative effects of intervention in the market, given 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 Treasury has proposed interest cover ratios and loan-to-value caps as its key levers to manage market risk. However, many lenders favour a more bespoke approach including customer profiles or mortgage product features.

The CML said the regulator should also consider whether the ratio would take into account the impact of void periods, the cost of maintaining the property, and whether or not any limit should apply before or after tax.

The trade body is also concerned that new-build, property development and Houses of Multiple Occupation (HMO) could end up covered by regulation as the paper doesn’t distinguish between residential and SME. Question marks also still remain about whether high-net-worth buy-to-let borrowers will be covered by the regulation as owner-occupiers remain exempt.

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