The Prudential Regulation Authority is warning mortgage lenders to be strict on their assessments of customers looking for buy to let loans.
The latest report from the Bank of England says buy to let has become less profitable in recent years due to various factors including tax changes.
In April of last year the phasing out of mortgage interest tax relief for landlords was completed.
Not all lenders have been taking this into account when assessing buy to let mortgage applications which could be leading to customers taking on larger sums which exceed the lending criteria.
In a statement from the PRA, they said: The PRA expects lenders to take income tax into account when assessing affordability. If the mortgage interest tax relief changes were strictly enforced for affordability testing, higher-rate taxpayers would need to meet a higher stressed interest cover ratio of 167 per cent to be assessed to the same standard as an ICR [interest cover ratio] of 125 per cent for basic-rate taxpayers.”
The PRA is concerned that this puts loans at greater risk. They will monitor lenders but on a more positive note in the report they stated: “The risk posed by such lending is low at present. The overall quality of buy to let lending has improved since 2016. And tax changes introduced since 2016, including the MITR [mortgage interest tax relief], have meant the buy to let market has been very subdued.”
Mortgage applications are already facing delays in the system due to a rush in applications from customers looking to benefit from the stamp duty holiday before it ends in March.
If you have a large property or HMO you currently let or just planned to let, but with all the uncertainty in the market, you are considering your options, don’t hesitate to give us a call. We specialise in these types of properties and can help you to evaluate your options.
Call 0161 850 5588 or email info@armisteadproperty.co.uk
Thanks for reading
Peter Armistead
Founder, Armistead Property
Keep up with the latest from Armistead Property on…
Facebook ➡️ https://www.facebook.com/ArmisteadProperty
Twitter ➡️ https://twitter.com/ArmisteadMcr
YouTube ➡️ https://www.youtube.com/channel/UCElC71ezG9h2tofxtEM05DA