Bank of England suggests tighter BTL lending criteria

Bank of England suggests tighter BTL lending criteria




The Bank of England has recommended tighter underwriting standards for the buy-to-let (BTL) sector.

The Prudential Regulation Authority’s (PRA) Financial Policy Committee has published a consultation paper seeking to “prevent a marked loosening of buy-to-let underwriting standards and to curtail inappropriate lending and the potential for excessive credit losses”.

The proposals are expected to lead to a fall “in the number of cumulative new approvals for buy-to-let mortgages by about 10-20% by Q3 2018, and correspondingly, a lower value of the stock of buy-to-let mortgages”.

The consultation paper proposes the introduction of a set of measures that firms should meet when underwriting BTL mortgages including affordability testing and interest rate affordability stress testing.

The PRA is also looking to establish a universal definition of a ‘portfolio landlord’, suggesting that any landlord with four or more mortgaged BTL properties would fall into this category.

Jeremy Leaf, a former RICS Chairman and north London estate agent, said: “This is a classic case of slamming the stable door after the horse has bolted.

“The changes the Chancellor has made to mortgage interest tax relief and higher stamp duty for landlords will have enough of an impact on buy-to-let without the need for further interference from the Bank of England.

“Landlords will already be put off investing further unless the numbers add up and this is a case of kicking them when they are down."

The suggestions follow a review of underwriting in the BTL market which highlighted concerns about lenders’ growth plans, in particular the risk that firms may relax underwriting standards. 

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