Landlords to face tougher mortgage affordability tests
29/03/2016
The Bank of England will try to cool the UK housing market by introducing tougher borrowing standards for buy-to-let investors, with the Bank hoping that this will prevent the market from overheating.
The Prudential Regulation Authority (PRA) which regulates the mortgage market, said that action is required in order to ensure that underwriting standards from lenders do not slip, as they expect to substantially grow the number of buy-to-let investors on their books.
Buy-to-let lending has increased ahead of the normal market rate in recent months with the 3 per cent stamp duty increase looming, but the PRA indicated that lenders expect a further 20 per cent growth in the market over the two to three years, even after the higher rate of tax is put in place.
To counter this, the PRA will require lenders to set a minimum borrower interest rate of 5.5 per cent over a minimum period of five years in order to assess affordability. The PRA has predicted that this could reduce the number of approvals by between 10 and 20 per cent.
The PRA said that three quarters of buy-to-let mortgage lenders already met the standards, but that five of the 20 largest mortgage lenders under the supervision of the PRA are currently using a stressed interest rate of 5.47 per cent or lower and as such would not meet the new standards.
The Bank’s financial policy committee (FPC) currently has buy-to-let lending as one of the lead risks to the domestic financial system, only behind the referendum of Britain’s potential exit from the European Union.
The FPC also cited growing household debt as a risk, and mentioned that domestic factors coupled with wider European uncertainty could cause the destabilisation of the financial system. The committee, said: “The FPC judges that the outlook for financial stability in the United Kingdom had deteriorated since it last meeting in November 2015. Domestic risks have been supplemented by risks around the EU referendum.
“The FPC remains alert to potential threats to financial stability from rapid growth in buy-to-let mortgage lending”.
Need Financial Advice
If you have any personal finance questions related to this news article, then please contact our financial advisers. You can get in touch by asking a question online, calling us on 0800 092 1245, or by arranging a visit.
Share this..
Related stories
Nationwide’s mortgage lending falls by almost £1b
25/11/2014 Nationwide Building Society’s mortgage lending has fallen by almost £1 billion over the past six months, its interim results show. Nationwide, Britain’s biggest building society, has released figures showing lending at £13.1bn for the six months to September 30, down £900m from the six months to March 30. Net lending was £2bn lower at £3.6bn. New mortgages lending rul...
Read MoreFirst-time buyer Mortgages at five-and-a-half-year high
The amount of mortgages approved for first-time buyers has risen to the highest level recorded in the last five-and-a-half years, according to the Council of Mortgage Lenders (CML). Since the recession in 2008, getting on the property ladder has been a hard task for first-time buyers, with lenders asking for higher deposits and increasing rates. However, Government schemes introduced in the las...
Read MoreFirst-time buyers face £45,000 deposit
20/08/2015 In just 10 years time, first-time buyers may face having to save up £45,000 for a deposit on a house if they have any chance of getting their foot on the housing ladder. Sales and letting company KIS has estimated that the typical North East house will cost £187,000 by 2020; £230,000 by 2025; and £278,000 by 2030. If a general deposit is considered 20%, this would mean buyers...
Read MoreHomeowners race to get homes remortgaged
11/08/2015 A large number of homeowners are racing to get their homes remortgaged before the base interest rate rises. Figures from the Council of Mortgage Lenders showed that remortgaging jumped by 30% in June, and was at its highest level since September 2013. During June 31,600 households changed their mortgage deals, compared with 24,300 in May. Price comparison website Comparethemarket...
Read MoreCommercial mortgages market awaiting return of liquidity
Those looking for an improvement in the commercial mortgages market may have to wait until the London Interbank Offered Rate (Libor) stabilises, according to one expert.Jonathan Moore, head of marketing at Mortgages for Business, is of the view that commercial mortgages will remain expensive until Libor drops.He commented: "It depends on the wider economic conditions. If Libor comes down and they...
Read More