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Buy-to-let escapes income cap but Bank warns it will be watching

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Written by: Samantha Partington
27/06/2014
The buy-to-let market has avoided Mark Carney's four and half times income multiple cap but the Bank warned the sector it will not escape its scrutiny.

Andrew Bailey Speaking at the Financial Policy Committee’s briefing on its Financial Stability Report, Prudential Regulation Authority head Andrew Bailey said the buy-to-let sector was not being ignored.

He said:

“We are looking across the whole market for signs of stress. You can be assured we will be monitoring it.”

Bailey said stability in the buy-to-let sector would continue to be monitored through the market stress test unveiled in March this year.

Lenders’ balance sheets have to be able to withstand a 35% drop in house prices, as they stood in Q4 2013, and a bank base rate rise to 4%.

The Bank refers to the scenario which incorporates a package of measures as a housing maket shock.

Bailey said the income-multiple cap would not be appropriate to control buy-to-let lending because the ‘income dynamic’ relative to rental payments was different to how residential property owners’ income was affected by mortgage payments.

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