Changes to Lending For Landlords

Lenders will have to assess borrowers on the assumption that they will be able to cover their interest payments on the basis of borrower rates being 5.5% for five years.

The Bank of England’s Prudential Regulation Authority (PRA) says that this should reduce buy-to-let approvals by between 10% and 20% by 2019.

The PRA says constraints are needed to ensure underwriting standards do not slip, with lenders currently expecting a 20% increase in buy-to-let business over the next two or three years.

Lending rules for larger landlords look set to be toughened up further. The PRA is seeking to establish a standard definition of what constitutes a ‘portfolio landlord’, suggesting that this would be someone with four or more mortgaged rental properties.

The PRA says there is an increase in arrears among landlords with buy-to-let portfolios of four or more mortgaged properties.

The PRA wants lending to portfolio landlords to follow a specialist underwriting process that accounts for the complex nature of the borrower and their portfolio of properties.

A consultation has been launched on the proposals, running until June 29.

However, the Residential Landlords Association was swift to attack the latest clampdown as premature.

While agreeing that no landlord should take on debt that they cannot afford, the RLA said that the proposals are premature given the considerable tax changes being made to the sector which are likely to cool the market.

Steve Povall said ‘the current buy to let market is not representative of the future buy to let market and it is reasonable to expect the demand for borrowing to decline after April 1st. Perhaps it would be wise for the bank to judge the market after the stamp duty deadline in order to not stifle the supply of the 1 million rental properties the country desperately needs.”