Landlords will face new restrictions when applying for a buy-to-let mortgage, as the Chancellor gives the Financial Policy Committee the power to place limits on lending.

Philip Hammond, the Chancellor, has recently announced that the Bank of England’s Financial Policy Committee (FPC) will have the necessary powers to impose restrictions on buy-to-let lending, from early 2017. The limits will help to control the risk of instability.

Directions will be given by the FPC to regulators who will direct lenders to place limits on the Interest Coverage Ratios of mortgages and the Loan to Value. The Interest Coverage Ratio of a buy-to-let is the amount of income expected from a rental to the mortgage interest payments.

It was previously recommended by the FPC that it should be handed the powers, to aid the role of the body which is to identify and prevent risks to the financial system. The consultation of the proposal, which took place in March, indicated that the FPC would be granted the powers, so lenders are unlikely to be shocked by the news.

According to Hammond, it is necessary for the independent regulators of Britain to maintain the safety of the country’s financial system. He added that while the buy-to-let investors could continue to contribute to the economy, the regulator would be able to address any risks to financial security.

Mortgage advisers study on a CeMAP course to ensure that information like this is known to them, making it possible to advise buy-to-let investors.

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