10th
Apr 2016
The Bank of England has just issued their new stance on implementing harder regimes when people apply for buy-to-let borrowing.
Its FPC (Financial Policy Committee) says that buy-to-let mortgages could seriously damage the financial system, although it did admit that a Brexit outcome would be the biggest short term risk.
The B of E’s Prudential Regulation Authority, (PRA) reports that lenders are gearing up to a large increase in buy-to-let mortgages over the next few years, this is despite the recent Stamp Duty hike and the introduction of a lower mortgage interest tax relief.
The authority says that buy-to-let borrowing could become frantic and that they wish “to ensure underwriting standards did not slip” as it is predicts BTL could increase by 20% over the next two to three years.
It has put together four measures designed to control buy-to-let lending standards:
• Lenders should consider the borrower’s costs associated with letting the property, including tax costs.
• Steps must be taken to make sure that a borrower’s personal income should be made transparent if they want it included to support the mortgage.
• Future interest increases should be predicted in affordability assessments, including the worst instant of interest rates increasing to 5.5% for a full five years.
• Any landlords with four or more properties should undergo a special underwriting process.
It is hoping that by introducing this tougher stance, the authority will substantially reduce BTL lending from between 10-20% by 2019.
However approximately 75% of lenders agreeing to buy-to-let mortgages are already meeting the standards’ criteria, the authority is increasingly concerned by the fact that 5 out of the 20 major lenders are presently using a ‘stressed interest rate’ of 5.47% or lower – which is lower than the new level which is being introduced by the authority.
The four measures will start from the summer of this year.
Jeremy Leaf, a north London estate agent and former RICS chairman, says: “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 Bank of England should have waited to see what impact the changes that have already been made have on the market before making further tweaks. The combined impact of all these measures will be to cut supply and increase the upward pressure on rents. A number of landlords will already have been tempted to sell before this latest round of proposed changes to the sector.”
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