Britain’s overleveraged landlords suffered a 13th consecutive interest-rate hike this week, as the Bank of England wrestles with inflation. Their pain, though, is evidence that rules introduced to protect the financial system from overextended borrowers are working exactly as planned.
The year 2008 marked a watershed for the home-loan market, after flimsy mortgage regulation allowed homeowners and investors alike to borrow large sums with little or no money down. Few lenders had checked that borrowers could actually afford to repay their loans, let alone withstand possible future increases in interest rates. The global economic crisis prompted UK regulators to introduce more stringent rules which, though painful for borrowers, make the financial system more resilient when stress increases.