Bank of England stress test results contain warning on buy-to-let housing market

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The Bank of England has said that the buy-to-let property market could destabilise UK banks if action is not taken to cool its rapid growth.

In the results of its "stress tests", which measure how well banks would cope with financial crisis, the Bank of England said that banks might have to put up to £10 billion more capital aside in case the economy started to deteriorate.

Barclays, HSBC, Lloyds, Nationwide, Santander, Standard Chartered and Royal Bank of Scotland passed the stress tests. Standard Chartered and RBS were judged the weakest of the high street banks. The Prudential Regulation Authority judged that improvements the two banks had made in 2015 meant they would both cope with another downturn.

The buy-to-let market could put the UK's financial stability at risk, the Bank of England said.

"The [Financial Policy Committee] remains alert to the rapid growth of the UK buy-to-let market, and potential developments in underwriting standards as the sector could pose a risk to broader financial stability," the Bank of England said in its report.

The committee had earlier introduced regulations limiting the number of residential mortgages worth more than 4.5 times the holder's income and implementing stress tests on the borrower's ability to repay loans.

This rules do not extend to buy-to-let, which makes up a sixth of the market. Lending in buy-to-let shot up 10 per cent in the first nine months of 2015 as the UK's aging population looked to put their money in housing while prices continued to rise.

That has added significantly to the amount of debt many households own and could cause problems if house prices drop.