MPC Member Expects BTL Lending to 'Cool Significantly' Post-Brexit

A Bank of England (BOE) member has told the UK Parliament’s Treasury Select Committee (TSC) that he expects banks’ buy-to-let (BTL) lending activity to slow in the wake of the UK’s vote for Brexit as lenders survey the new, post-Brexit landscape.

Giving evidence alongside BOE governor Mark Carney, external Monetary Policy Committee (MPC) member Richard Sharp told the TSC that the impact Brexit will likely have on the BTL market was for banks to slow lending activity as they monitor the impact of the EU referendum decision on the UK’s housing market.

Mr. Sharp said he expected lending to the sector “would cool significantly” later in the year, adding “I suspect the banks will want to see what regime we're in, in terms of house prices before they go back to aggressive lending.”

Unfortunately for UK landlords and BTL investors, Brexit isn’t the only change they are dealing with. New rules on stamp duty tax for owners of more than one property came into force from April 1st and new additional tax rules will also be introduced to the market whereby landlords can no longer offset mortgage interest against their rental income, among others.

The BOE, along with lenders, will likely be closely monitoring the impact of all of these factors together while remaining cautious and open-minded as to the eventual outcome.

The latest data from the Council of Mortgage Lenders (CML) shows that BTL mortgage lending dropped off sharply in April and May following the new stamp duty rules. In the first quarter of 2016, 48,800 new BTL mortgages were approved and advanced - or a crude average of 16,233 per month.  Once the new rules came in on April 1, the figures dropped drastically to 4,200 in April and 4,400 in May. Given the lack of activity amid heightened uncertainty during June, the final total for the whole of the second quarter could be less than the levels seen in each separate month during the first quarter.

While monthly data tend to be volatile, the second quarter figures will provide the next piece of the puzzle for policy makers and economists. By awaiting clear evidence, policy-makers in particular can be relied upon not to make any knee-jerk judgements or policy reactions to Brexit, as shown by the fact they held rates and policy unchanged at the July meeting.

And, looking forward to the August MPC meeting, committee member Martin Weale said in a recent speech that more evidence of the impact of Brexit is required before he will vote for any policy action.  

“Uncertainty points to the argument that we should wait for firmer evidence before making any policy change,” he said in speech in London. He added that the Bank is “not a nurse to markets” and also told his audience that “for there to be a case for easing policy, I will need to expect weakness in output to be large enough more than to compensate for any overshoot.”

With so much uncertainty still being experienced by the markets, economist and policy-makers, it’s understandable why Sharp expects a slowdown in BLT lending activity. It’s also likely, however, that demand will weaken too.