In our Buy-to-Let series, ‘Buy-to-Let: time to let go?’ we have explored the various challenges currently facing private landlords and put forward alternatives for property backed investments, Proplend, of course being one!
In Part 3 we moved away from mainstream media talk of tax and stamp duty increases to look at potential changes to regulation, specifically the new powers handed to the Bank of England to restrict Buy-to-Let lending through the mortgage market.
This week the Bank of England has proposed new measures to limit borrowing for Buy-to-Let investment, suggesting lenders should be much stricter when deciding whether to grant landlords a mortgage.
No longer simply focused on rental income cover, the Bank wants lenders to look at a landlord’s wider financial situation taking into account:
- All costs a landlord might incur
- Stress test for a rise in interest rates of 2%
- Tax liabilities associated with the property
- Personal tax liabilities
- Verified additional income
The Prudential Regulation Authority (PRA), the arm of the Bank looking into this, has estimated changes could reduce Buy-to-Let lending by 20% over the next three years adding that new standards would “curtail inappropriate lending and the potential for excessive credit losses.”
You can read the Bank of England Consultation Paper here: http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp1116.pdf