Bank of England warns on Brexit, tightens buy-to-let mortgages

Tue Mar 29, 2016 8:48am EDT
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By David Milliken and Huw Jones

LONDON (Reuters) - Britain's European Union referendum could push up credit costs and weaken sterling more, the Bank of England warned on Tuesday, as it moved to bolster banks' risk buffers and slow a boom in lending to landlords.

The central bank said the outlook for financial stability had worsened since its last report in November, saying a rebound in Chinese lending was "concerning" and that June 23's vote on leaving the EU was now the biggest domestic risk.

BoE Governor Mark Carney came under fire from some pro-Brexit lawmakers earlier this month for exaggerating the dangers of leaving the EU, though the central bank does not have an official position on whether Britain should remain.

The BoE's Financial Policy Committee, which Carney chairs, said on Tuesday that "heightened and prolonged uncertainty ... could lead to a further depreciation of sterling and affect the cost ... of financing for a broad range of UK borrowers."

Sterling has fallen to a seven-year low against the dollar since the start of the year and markets price in extra volatility for around the date of the referendum.

While much of the BoE's concern about Brexit was familiar, less expected was its decision to tighten credit checks on landlords and move ahead with a disputed plan to vary the size of banks' risk buffers over the economic cycle.

The immediate impact of both measures is likely to be modest, but they indicate a policy direction and may have a greater effect over time if the Bank expands them.

Buy-to-let lending has boomed in Britain in recent years, and is now worth 200 billion pounds ($286 billion).   Continued...

A taxi and buses queue outside the Bank of England in London, Britain December 10, 2015.  REUTERS/Luke MacGregor