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Lenders feel under pressure to rein in buy-to-let lending

  • 28/11/2016
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Lenders feel under pressure to rein in buy-to-let lending
The Bank of England’s Prudential Regulation Authority has been in talks with large UK institutions regarding their buy-to-let business, which some have interpreted as a warning to clamp down on the amount they lend to landlords.

A report by the Financial Times said that over the past two weeks supervisors from the PRA had visited three institutions, with one lender saying that while they had not been explicitly told to reduce the amount they lend “the message was clear – we [the PRA] think you have enough buy-to-let loans”.

The reports come as lenders prepare to implement tighter underwriting standards on their buy-to-let lending, as required by the PRA. From 1 January affordability assessments to determine a borrower’s interest coverage ratio will be stricter, with lenders also require to assume a minimum borrower interest rate of 5.5% for the first five years of a buy-to-let contract.

Other changes, such as the way portfolio landlords are assessed, will be brought into effect from 30 September 2017.

Most lenders have already gone some way in preparing for the changes, with BM Solutions the latest lender this month to reveal how it will calculate interest coverage for buy-to-let borrowers.

The PRA declined to comment.

Further powers awarded by the government to the Bank of England recently will see the Bank’s Financial Policy Committee able to place limits on loan-to-values and interest coverage ratios for regulated lenders if they see fit.

These and additional factors such as tax restraints and an uncertain economic outlook already appear to be impacting lending levels according to recent data. Recent analysis published by Equifax showed that buy-to-let mortgage sales dropped by 5.3% in October compared to a month earlier.

Take a look at our 9 things you should know about the PRA’s buy-to-let underwriting rules

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