The criteria lenders must use for buy-to-let mortgages are about to get sharply tightened, with consequences across the property market.
The Prudential Regulation Authority (PRA) has followed up the review it started earlier this year with a clear timetable for change, change which banks and other lenders must now put in place by the beginning of 2017.
The PRA, part of the Bank of England, regulates and supervises the lending practices of around 1700 banks, building societies and credit unions operating in the UK. The new rules include two important changes.
First, buy to let borrowers will have to show higher levels of rental income relative to their mortgage costs.
Second, new mortgages will need to be “stress tested” against income and liabilities at a rate of 5.5 per cent; that is, borrowers will need to show they could still afford the mortgage if interest rates rose to that figure.
There will also be more checks and greater scrutiny for landlords who own four or more properties.
These changes could create a serious downward pressure on the loan-to-value ratio available to buy-to-let borrowers. Taken with the removal of tax relief on mortgage interest charges and higher stamp duty charges they could make many currently viable investments unaffordable.
Clearly the immediate impact will be on private sector lettings. In the longer term by reducing the number of potential buyers it could affect sales values across the property market.
Here’s a link to a full article on the subject.
By Jaimie Beers
Jaimie Beers is managing director of Madley Property.