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7th November 2016
Tougher buy-to-let borrowing standards, including a minimum stress-test of 5.5%, will be introduced by the Prudential Regulation Authority (PRA) from 1st January 2017.
Investors will have to prove that money they receive from rent will be sufficient to cover the repayments on their buy-to-let mortgages, should interest rates increase by as much as 5.25%. This system, known as ‘stress testing’, is designed to ensure landlords are not able to borrow more than they can feasibly repay.
The PRA already expect lenders to consider market expectations, a minimum increase of 2% in buy-to-let mortgage interest rates and any prevailing Financial Policy Committee recommendations.
As of January, should these factors still indicate that the borrower’s interest rate will be less than 5.5%, a minimum interest rate of 5.5% must still be assumed. This interest rate is applied to the first five years of the buy-to-let mortgage.
Some lenders have already introduced the new interest rates, ahead of the fixed change in January.
In addition to changes to the Stress Test, the PRA is introducing a range of other affordability tests that will be rolled out by the end of September 2017.
These include a more prudent approach to lenders’ affordability assessments, which give consideration to all costs associated with renting out a property where the landlord is responsible for payment, any tax liability associated with the property and the borrower’s income tax and other related expenses.
Are you concerned about how these changes may impact your buy-to-let mortgage application? Get in touch with our highly experienced independent mortgage advisor, Graham Griffin CeMAP for no-obligation and no-fee professional mortgage advice. Call Maslen Financial Services today on 01273 647390.