Landlords to face tougher mortgage affordability tests
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.
Mortgage approvals on the up
The British Bankers Association has revealed impressive figures that show UK mortgage approvals have hit a 15 month high and show a 65% increase on the figures from June 2008. A total of 35,235 mortgages were approved in UK in the month of June which compares favourably with the 31,919 approved in May and the recent low of 17,953 which was reached in November last year.
Where will all the first-time buyers go?
Recent changes in UK mortgage sector have seen more and more mortgage providers backing away from the first-time buyers' market by simply demanding deposits in excess of 10% and often in excess of 30%. Not only has this reduced liquidity in this sub-sector but it has also reduced competition for first-time buyers, a situation which will see the cost of mortgages rise higher and higher for the fore...Read More
HSBC takes the UK mortgage market by storm
Despite the woes of the UK property market it appears as though UK banking giant HSBC has benefited from the troubles many competitors are experiencing. The company has almost trebled its share of the UK mortgage market from 2.4% in 2007 to 7% in 2008. The group has been very proactive over the last 12 months with regards to the significant number of customers coming off cheaper fixed mortgage agr...Read More
Tidal wave of buy-to-let landlords continues
Although there are already around 900,000 buy-to-let landlords currently in the market, the same number again want to join them by 2010, according to a new report by Mintel.In the region of 900,000 people told researchers that they aim to buy "at least" one rental property within the next three years, whether as an amateur landlord or as a seasoned investor adding to their portfolio.As the average...Read More
Mortgage lending staggers to 16 year low
News that mortgage funding in August amounted to just £21.8 billion, down a massive twelve percent on the previous month, has again highlighted the current climate in the housing sector. At a time when there was hope that the likes of Barratt Developments and other majors in the sector could trade their way out of trouble, this looks an increasingly forlorn hope.