Mortgage lending set to tighten for embattled landlords
As if the 3% surcharge and the planned phase-out of mortgage interest relief weren’t enough, landlords are also now facing more stringent tests when applying for a buy-to-let mortgage. The Bank of England’s Prudential Regulation Authority (PRA) has announced that it will act to prevent a bubble in the private rental market fuelled by investment from smaller landlords, who it said may be susceptible to falling into arrears if interest rates start to rise. It says lenders must apply new tests to check:
–– All the costs a landlord may incur in letting a property;
–– any tax liability associated with the property;
–– a landlord’s personal tax liabilities, essential expenditure
and living costs;
–– a landlord’s additional income where it is used to support borrowing. This must be verified;
–– how much cash borrowers have to cover their interest payments in the scenario that interest rates rise to 5.5% for a five-year period.
The PRA said the new restrictions on mortgage lending for buy-to-let investors should see buy-to-let mortgage approvals fall by 10-20% by 2019, but pointed out 75% of mortgage providers already apply these criteria.