Landlords face new affordability tests

March 29, 2016 12:06 pm Published by

Landlords should face new affordability tests, says Bank of England

  • 29 March 2016
  • From the section Business

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Buy-to-let landlords should face new limits on the amount they can borrow, the Bank of England has proposed.

It suggested that lenders should be much stricter when deciding whether or not to grant landlords a mortgage.

Instead of just taking their rental income into account, the Bank wants lenders to look at their wider financial situation as well.

If adopted, the new rules could reduce lending to landlords by up to 20% over the next three years.

The Prudential Regulation Authority (PRA) – an arm of the Bank – has recommended that banks and building societies take account of:

  • all the costs a landlord might have to pay when renting out a property
  • any tax liability associated with the property
  • a landlord’s personal tax liabilities, “essential expenditure” and living costs.

The PRA has also suggested that lenders should apply a stricter interest rate “stress test”, to measure affordability in the event of a rise in interest rates.

It said lenders should look at potential rate rises over a five year period from the start of a mortgage.

They should also consider whether a landlord could afford repayments in the event of a 2% rise in interest rates.

The PRA has launched a consultation into its plans, which will last until 29 June 2016.

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This post was written by FSB News