The Bank of England has issued a warning that in the event of UK house prices falling there could be major repercussions, resulting in a UK economic recovery setback.
Recent figures have indicated that lending to landlords has gone up by 40 per cent when compared to 2008, which is 20 times quicker than the rate for mortgages taken out by owner-occupiers.
In a statement, the Bank’s Financial Policy Committee (FPC) said that landlords are often funded through interest-only loans, which puts them at a much higher risk of facing financial difficulty if house prices were to significantly drop in the future.
The number of people living in privately rented accommodation is also higher than ever before, and a demand in the sector means that house prices for purchasers could continue to rise, which in turn would mean that average household debt goes up even further than current levels.
Greater levels of competition among the high street banks could result in easier lending terms for landlords, which poses another threat to house prices.
The Bank added that: “The committee considered the rapid growth of buy-to-let mortgage lending.
“It does not consider action to be warranted at present, but will monitor underwriting standards and other conditions closely.”
House prices are increasing on an annual basis in the UK, though slower than the rate set last year.
Commenting on the UK’s economic situation, the FPC said it “remains challenging”, which is also due to economic problems overseas in China.