Bid to rein in buy-to-let lending with tougher testing

Amateur landlords will face tighter borrowing rules and stricter affordability tests under plans by the Bank of England to crack down on buy-to-let lending.

The Prudential Regulation Authority (PRA) - the arm of the Bank that regulates banks and the financial sector - said it wants lenders to make income checks more stringent for buy-to-let investors and test whether they can still afford their regular repayments at higher interest rates.

Its clampdown comes amid fears that Britain’s booming buy-to-let market is overheating, with the Financial Policy Committee (FPC) also separately warning that surging levels of lending to landlords pose a risk to the property market and financial system.

The PRA said while most lenders already met minimum requirements for lending to buy-to-let borrowers, it found some had weaker underwriting standards.

Concerns over buy-to-let lending were among a number of risks also highlighted by the FPC in its quarterly statement.

In minutes of its latest meeting, the FPC said: “The macroprudential risks centre on the possibility that buy-to-let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress.”

The Bank estimates that the plans to rein in buy-to-let lending could cut new approvals for buy-to-let mortgages by about 10% to 20% by the third quarter of 2018.

The Bank said it wanted lenders to check far more than just rental income and wants them to consider their wider finances, looking thoroughly at landlord income and taking into account rising taxation on buy-to-let investments.