Bank of England Seeks to Rein in Landlord Borrowing

Landlords will shortly be hit by newly restrictive lending criteria when they apply for a buy to let mortgage.

Flourishing Buy to Let Sector Could Cause a Crash
The Bank of England, concerned that the booming rental sector is affecting the country’s financial stability, has once again tightened its stranglehold on eligibility criteria for buy to let mortgages.

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Any landlord applying for money to finance their portfolio will be subject to rigorous new “affordability assessments”. These are designed to make sure borrowers are able to afford their mortgage repayments in the event interest rates go up by two percentage points, or they exceed 5.5%, whichever is higher. Lenders will also examine a landlord’s tax liabilities and any other sources of personal income he has, to check whether there are likely to be changes in his financial stability over the life of the mortgage.

Lenders are also being told they can only assume landlords are going to put rents up by a maximum of 2%. Landlords will also need an interest cover ratio of at least 125%.

Buy to Let Mortgage Approval Rates Fall
Figures released post-referendum show that the number of buy to let mortgages approved since the EU referendum has dropped to a 20-month low.

The new proposals from the Bank of England will be phased in over the next year, with the most complex changes not coming into effect until September 2017, a move that has been welcomed by the industry.