Today has seen the Prudential Regulation Authority publish a report regarding underwriting standards for buy-to-let mortgage lenders. This report addresses potential ways to control the volatile buy-to-let market, in a bid to negate the chances of another crash.
Clampdown
As expected, The Bank of England has said it is to implement new, tougher quality assessments on buy-to-let lenders. The Prudential Regulation Authority is to put a, ‘guardrail,’ in place to stop banks from giving risky loans, noting that as many as one in five lenders does not carry out the sufficient checks.
This clampdown comes as concern grows over the notion that there is a bubble in the buy-to-let market, which could ultimately cause the wider property market to slow.
Following the Chancellor’s perceived attacks on the sector, including the 3% additional stamp duty charges on buy-to-let purchases, the Bank has now also weighed in.
Affordability
The Bank believes that lenders should impose affordability checks on all buy-to-let landlords. It said that borrowers should consider how much money borrowers had to cover their interest payments, should costs rise up to 5.5%.
New Bank of England powers target BTL lenders
Presently, five of the twenty lenders under scrutiny from the Bank do not impose these standards. The Bank is hopeful that these measures will cut the predicted growth of buy-to-let mortgage lending from around 20% a year to 17%.
Though less severe than first feared, the measures could be reviewed later in the year, according to the Chancellor.
In his address to the Treasury committee, Mr Osborne said, ‘the Bank of England and the financial policy committee have identified potential systematic risks in the large increase in the buy-to-let market. It is highly likely we will give the FPC powers over the buy-to-let market. It is possible we can do that later this year.’[1]
[1] http://www.propertyreporter.co.uk/landlords/landlords-to-be-reined-in-by-new-boe-powers.html