Bank of England reveals new criteria to limit landlords ability to obtain BTL mortgages
Today the Bank of England revealed new rules and restrictions on mortgage lenders to limit the supply of buy-to-let loans.
The Prudential Regulatory Authority, the Bank’s regulation arm, is concerned that changes to mortgage interest tax relief for landlords will strain buy-to-let borrowers and that only a few lenders include this risk when assessing mortgage applications.
The PRA set out measures it predicted would reduce the number of new buy-to-let mortgages by 10-20% during 2018:
- 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 PRA will start talking to lenders immediately and publish its final requirements at the end of July, giving lenders about a month to implement them.
Banks have become financially stronger in the past three years but weaker earnings could reduce their ability to withstand shocks. After testing the banks against a crisis scenario, the FPC has told them to increase their capital buffers by half a percentage point to prepare for possible turbulence that could cause bad debts to rise.
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.”