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Regulator warns buy to let lenders to be strict on borrowers

The financial services regulator, the Prudential Regulation Authority, is warning mortgage lenders to be strict on their assessment of customers wanting buy to let loans. 

The Bank of England’s latest Bank Overground publication, which discusses private landlord tax changes, says buy to let has become less profitable in recent years for higher-rate tax payers.

In particular this applies to the phasing out of mortgage interest tax relief for landlords, which was completed in April of this year.

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However, it suggests that not all lenders have taken this into account when assessing the affordability of applicants, and thus may be lending sums which exceed the criteria for customers to comfortably repay.

The authority says: “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.”

It claims that most lenders assess higher-rate taxpayers against a minimum stressed ICR of around 145 per cent. That means some lenders are now accepting a lower net rental income for higher rate taxpayers, putting their loans at greater risk.

The PRA will now monitor lenders but it admits elsewhere in the report: “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.”

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    Of course lenders are going to be careful lending money just as we are going to be careful who we rent to, hard times ahead with mass unemployment and bankruptcies.

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    • 30 November 2020 09:31 AM

    However, it does seem to be the case that Govt., Housing Associations, Councils and Local Authorities are trying VERY hard to ensure that we as Landlords, do not have 100% control over who can use our properties.

    In my view, they have no right to decide as to whom I, yes ME, want to allow to rent MY Property. It is my decision and mine only. Which of you have eves seated and bled to buy my houses.

    So - All of you interfering unelected and elected bodies - GET LOST AND GO AWAY.

    It has absolutely nothing to do with you.

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    No council or government will tell me who I have to rent to, the property will sit empty first.

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    • 30 November 2020 09:41 AM

    I agree with you Andrew.

    I will never be bullied as to who can live in my houses, but there are many institutions who have the opposite view!!!! And they have a very powerful voice.

    UNFORTUNATELY

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    I have a very nice holiday home that I can let easily from April to October and I used to take a 6 month let from 1st October to 31 March, but with the SNP having banned landlords and tenants from freely agreeing a mutually acceptable fixed term lease of 6 months, I no longer do this.

    I was prepared to lose the 6 months' rent and pay the Council Tax but I have found I am no worse off as I can get it (usually) let for peak week rents over Christmas and New Year and a few off peak rentals from time to time.

    The result is that it now qualifies as a furnished holiday let, avoiding Council Tax and Business Rates but qualifying for full mortgage tax relief and reduced CGT of 10%, were I to sell it, Oh, and another result is one less potential home available for let for six months of the year! The SNP's loony laws have unintended consequences, usually for the financially innumerate who are their supporters!

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    Prudential regulatory Authority have no need to warn Lenders they are never at risk its the buyer that always get caught, they are well protected & can repossess in a couple of months not 2 years like LL's.
    I never understood all this lending scenarios anyway whether 125%, 145% or 175% its all double dutch to me and the Rent was never that much more to cover any of them its rubbish. The Regulator should be more concerned about the Rent Arrears imposed on us by Statute than the tax we pay, we have to get the money first to be able to pay the tax not alone make repayments on the the Mortgage.

  • girish mehta

    Another short term meddling with no long term solution

    Housing shortage ongoing since 60s . It will go on for decades as the government, councils and vested parties make money to pedalled their mo Eu grabbing policies. If they did address the issues these people will lose their cash cow.

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