• Shares decline after report on potential for buy-to-let rules
  • BOE could impose tougher capital requirements on lenders

Virgin Money Holdings UK Plc and Aldermore Group Plc may require more capital if British regulators impose tougher rules to curb the buy-to-let housing market, Bank of America Corp. said. The shares slumped.

Billionaire Richard Branson’s Virgin Money would be hardest hit if the Bank of England introduces tougher capital requirements on lending to landlords, analysts led by Michael Helsby wrote in a note to clients on Thursday. They cut the lender’s rating to neutral from buy, while downgrading Aldermore to under-perform from buy.

Virgin and Aldermore are among a group of small British lenders seeking to challenge the dominance of the nation’s largest banks, which together control as much as 80 percent of the market. While increasing demand and surging prices in the British housing market are helping spur their expansion, a tighter focus from regulators seeking to avert a bubble in property prices could undermine earnings growth.

“Some sort of underwriting controls is inevitable,” the analysts wrote. “With the BOE’s new focus on buy-to-let and consumer credit, we are increasingly worried about the ability of Virgin Money to deliver.”

The BOE has signaled that it’s concerned about the rate of growth in demand for buy-to-let mortgages, which have made up most of the expansion in mortgage lending since 2008 as banks compete for borrowers, often by requiring that only the interest is paid each month. BOE Governor Mark Carney said on Nov. 5 that the central bank is watching the developments of the buy-to-let housing market “closely.”

Virgin Money slumped 6.3 percent to 350.5 pence at 12:18 p.m. in London, the biggest intraday drop since July, while Aldermore fell 6.8 percent to 258.20 pence. Both have gained more than 20 percent this year.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE