Larger landlords with four or more properties in their portfolio should be subject to tougher underwriting standards, the Bank of England’s Prudential Regulation Authority (PRA) has advised.
The PRA claims that without further constraints, lenders expect a gross increase of 20% in buy-to-let borrowing over the next two to three years.
It set out four measures designed to tighten buy-to-let lending standards:
- Lenders should consider the borrower’s costs associated with letting the property, including tax costs
- A borrower’s personal income should be verified if the lender wants to include it to support the mortgage
- Lenders should include future interest rate increases in affordability assessments at 5.5%
- There should be a special underwriting process for “portfolio landlords” with four or more properties
The Residential Landlords Association, said the buy-to-let proposals were premature. Policy director David Smith said:
“The Bank needs to be careful that it does not over-react to the current surge in buy to let applications which are aiming to beat the tax increases coming in April.
“We would urge the Bank to tread carefully and avoid any premature moves that could stifle the supply of the one million rental properties the country desperately needs.”
The Guardian stated
The Bank is concerned that lenders have relaxed standards for landlords, creating conditions for a property crash. Potential measures to rein in the market include limiting the percentage of buy-to-let mortgages for each lender, tightening the terms of such mortgages or forcing lenders to use more capital for the loans.
The buy-to-let market has jumped back to life in recent years with interest rates at all-time lows, making borrowing cheap and offering little return for people with money in the bank.
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