New buy-to-let lending rules introduced by the Prudential Regulation Authority, and The Bank of England, are set to be implemented this September. The new rules will include an interest rate-dependent stress test and a requirement for lenders to review a landlord’s entire property portfolio during the application process.
The new stress test means that lenders will be required to determine if a buy-to-let borrower can afford repayments on a mortgage should interest rates increase to 5.5%, or a 2% increase on the current interest rates. Moreover, during the application process on a new rental property, lenders will examine a buyer’s entire property portfolio. According to the new rules all the portfolio will need to be viable before being accepted, although whether this means rent will need to cover mortgage repayments on each individual property, or on an aggregate level, is currently unknown. Lenders will also be able to ask for proof of rental income and a business plan from the landlord when reviewing the application.
"The new buy-to-let rules are being introduced to make rental properties less attractive to investors in the hope that first time buyers will have a better chance of securing a mortgage on starter homes."
According to the Council of Mortgage Lenders (CML), buy-to-let purchases have reduced by half over the past year, with a monthly average of 6,000 since the start of 2017.