The Bank of England’s Prudential Regulation Authority is warning lenders they must be far stricter on granting buy-to-let properties’ mortgage loans.

The Bank of England’s executive director David Bailey, has sent out letters to all lenders’ chief executives warning the market must be ready to face  “a prolonged period of credit stress.”

He says: “The operating environment for firms remains challenging. The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply-chain disruptions is expected to pose challenges to firms' credit portfolios."

The tightening of stricter protocols must also be used for loans to small businesses, commercial property mortgages and unsecured personal loans.

The letter says: “The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios. Firms need to be ready for a prolonged period of stress.

“In recent years, including through events like the Covid-19 pandemic, firms have tightened underwriting standards, enhanced forbearance tools, and increased operational preparedness for collections. However, these enhancements are untested under the current combination of risk factors.

“Therefore, it is important that firms ensure their credit risk management practices are robust, portfolios are closely monitored, customer support and collections arrangements are appropriately scaled, and expected credit loss provisions are recognised in a timely manner.”

The lenders’ trade body - UK Finance -  recent data shows the overall value of BTL mortgages taken out in 2019 was £39.5 billion, this is cited as the last normal year prior to Covid, of which £29.3 billion was for re-mortgages and £10.2 billion for new properties.