The Bank of England has warned that buy-to-let lending poses a risk to Britain's financial stability.
In line with rising house prices investors are in line taking on ever larger loans, which leaves them vulnerable if house prices are to fall, said the Financial Policy Committee in a report.
The Bank said that if the housing market were to enter a downturn, landlords could find themselves under pressure.
BRITAIN's outstanding buy-to-let loans have now topped £200billion - equivalent to the entire GDP of Hong Kong - according to the Council of Mortgage Lenders.
In July buy-to-let loans jumped a huge 33 per cent year-on-year and 14 per cent month-on-month - by way of comparison, first-time buyers increased by seven per cent year-on-year and five per cent year-on-year.[source:Express]
The Bank's Financial Policy Committee, led by Governor Mark Carney, warned that landlords could be 'disproportionately vulnerable' to large falls in house prices and could make any property downturn even worse.
If landlords see their loan repayments overtaking any rental income they can generate, many will respond by selling their property - potentially accelerating a downturn in the property market.
'As the market continues to grow, particularly if driven by loosening of underwriting standards, the sector could pose risks to broader financial stability, both through credit risk to banks and the amplification of movements in the housing market.' [source: Mail]
In the US, Co-Op Bank offloaded $2.5 billion non-core mortgage assets.
Britain's Co-operative Bank has offloaded 1.65 billion pounds ($2.5 billion) of risky home loans through a second securitisation of its Optimum residential mortgage portfolio, it said on Friday.
Co-op Bank was the only British bank to fail a stress test by the financial regulator last year. [source: Reuters]
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