UK buy-to-let mortgages to see stress testing from start of 2017
Landlords looking to get themselves a buy-to-let mortgage for investment in the very popular PRS will be put through more tests before being approved for a loan from next year, according to new rules set to come into play from the start of 2017.
The new regulations come after the Prudential Regulation Authority (PRA) was asked by Westminster to carry out a review of the buy-to-let market, and the lending therein.
As a result of this review, it has now set out a new timetable, which it has said will lenders to tighten up criteria for their lending to landlords. However, this is not an issue that will affect everyone, after the PRA said that the new regulations will not apply to mortgages with terms of less than five years, or rates fixed for five years or more.
For those mortgages that will be affected by the changes, it was reported that buy-to-let mortgage lenders will have to ask landlords to have a higher level of rent relative to their mortgage repayments in order to ensure they have the ability to pay back what they owe. Void periods in particular are a concern when it comes to lending, and it's vital that mortgage companies now know that landlords are making enough through rent to cover these.
Lenders will also be able to factor in rent rises of as much as two per cent per year when it comes to deciding whether or not the landlord can afford their mortgage.
For those landlords with portfolios, and more specifically those who have four or more properties to their name, mortgage lenders will have to ask for more information about the income and debts that they have.
Changes will need to be made next year, with the PRA saying that stress tests will need to be implemented by January of 2017, while the more complex and challenging alterations to policy will need to be in evidence by September.
Peter Williams, executive director of the Intermediary Mortgage Lenders Association (IMLA), said: "We are encouraged that the new standards are to be implemented in a sensibly phased way over the course of the next year. In the interests of a stable market for buy-to-let mortgages and housing overall, this 12 month window should now be allowed to unfold free from additional change and upheaval."