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In the Bank of England’s latest ‘Bank Overground’ publication there is a large feature centred on private landlord tax changes, it surmises that over the last five years buy to let has had its margins and profits reduced by legislative dictates and tax increases, making it far less profitable for tax payers especially those in the higher income bracket.

One of the biggest tax grabs was the phasing out of the mortgage interest tax relief for landlords which ended in April.

The PRA believes that there are some lenders, when considering BTL mortgage applications, do not take this into account which could lead to granting mortgages that go beyond the criteria for customers’ affordability levels.

The financial services authority says: “The PRA expects lenders to take income tax into account when assessing affordability. If the mortgage interest tax relief changes were strictly enforced for affordability testing, higher-rate taxpayers would need to meet a higher stressed interest cover ratio of 167 per cent to be assessed to the same standard as an ICR [interest cover ratio] of 125 per cent for basic-rate taxpayers.”

The PRA states that the majority of lenders assess higher rate taxpayers against the ICR minimum stressed of around 145%; this could mean that lenders could be accepting a lower net rental income making the loans a greater risk.

The authority will monitor lenders more stringently but admits in the report: “The risk posed by such lending is low at present. The overall quality of buy to let lending has improved since 2016. And tax changes introduced since 2016, including the MITR [mortgage interest tax relief], have meant the buy to let market has been very subdued.”