BTL approvals to be cut by 20% under new proposals

BTL approvals to be cut by 20% under new proposals

According to new PRA proposals published today, landlords with four or more properties in their portfolio should be subject to tougher underwriting standards, leading "to a decrease in the number of cumulative new approvals for buy-to-let mortgages by about 10-20% by Q3 2018".

The PRA review highlighted concerns about lenders’ growth plans and how they might meet them, finding that firms are "affecting their safety" by having relaxed underwriting standards.

To prevent a "marked loosening in buy-to-let underwriting standards and to curtail inappropriate lending and the potential for excessive credit losses", the PRA has proposed new rules and has suggested that lenders should pay attention to:

    Market expectations
    A minimum increase of 2% in buy-to-let mortgage interest rates
    Any Financial Policy Committee announcements around appropriate interest rate stress tests for buy-to-let

The report added that lenders should assume a minimum borrower interest rate of 5.5%, saying: “The proposals on affordability testing aim to improve the safety and soundness of PRA regulated firms by ensuring that they take full account of any potential interest rate rises in their buy-to-let underwriting assessment.

This will help curtail inappropriately risky and imprudent lending – loans that are affordable under the current low interest rates environment but will quickly become unaffordable if and when interest rates rise – and lower potential credit losses and repossession costs.

As a result, these proposals are also expected to help insulate the lenders, the financial sector and wider economy from the impact of negative shocks in the housing market.”


The PRA is also seeking to establish a standard definition of what constitutes a ‘Portfolio landlord’. Under this proposal, a landlord would be considered to be a Portfolio landlord where they have four or more mortgaged buy-to-let properties across all lenders in aggregate. Data gathered by the PRA shows that there is an increase in observed arrears rates of landlords with buy-to-let portfolios of four or more mortgaged properties.

The PRA is expecting that firms conducting lending to Portfolio landlords do so according to a specialist underwriting process that accounts for the complex nature of the borrower and their portfolio of properties.

As affordability constrains the value of the loan a firm can extend, the PRA is not proposing supervisory guidance with respect to specific LTV standards.

However, the PRA does expect firms to have "appropriate controls in place" to monitor, manage and mitigate the risks of higher LTV lending.

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Latest Comments

Spencer Fortag
Spencer Fortag 25 Aug 2016

The funny thing is, I mentioned the brick issue in my blog back in April: http://medwayproperty.blogspot.co.uk/2016/04/the-medway-property-market-and-lack-of.html

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SecomTech
SecomTech 19 Aug 2016

Firstly, I either lodge with DPS or do not take a deposit...secondly, If a tenant has not received a confirmation their deposit is secured with either a scheme or in an insured account with an agent/landlord,...

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jasonevans
jasonevans 19 Aug 2016

Belvoir has over 15 years of experience in property lettings, buying and renting and is one of the best agencies I know about. I have heard that they revived an award for the hard work. Really amazing...

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jasonevans
jasonevans 19 Aug 2016

Usually these areas are least affected when it comes to unexpected economical collapse.

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TheWaspNestRemover
TheWaspNestRemover 11 Aug 2016

You agree to pay for the treatment needed to get rid of fleas, ants, mice, wasps nests and other pests unless you can prove that these are a result of us not meeting our repairing responsibilities or these...

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madisonwelch80
madisonwelch80 02 Aug 2016

16% is quite a raise. Let's hope this tendency won't continue for long.

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madisonwelch80
madisonwelch80 02 Aug 2016

?66,963 is a serious price drop However buying a property it a serious investment only small percentage of the UK population could afford.

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madisonwelch80
madisonwelch80 02 Aug 2016

Wow, it kind of surprised me. I mean counting on mom and dad's bank even after retirement is too much. That's the moment in life when one should have ensured themselves. I am shocked.

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AbbieP.
AbbieP. 22 Jul 2016

"While house prices in the most expensive eleven boroughs have declined values in the cheapest eleven boroughs continue to rise" - not a nice way to even out the price range. London is overrated as it

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AbbieP.
AbbieP. 21 Jul 2016

And try to profit from your decisions, I may add

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CommercialTrust
CommercialTrust 19 Jul 2016

Retirement investment has always been one of the biggest draws of buy to let. And the buy-to-let demographic is, on balance, older. (Over a third of our applicants are over 50 at the time of application.) It...

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Forrest Wheatey
Forrest Wheatey 11 Jul 2016

I find the time perfect for ever home-owner wannabe. Prices should slowly, but steadily drop, at least for the inner buyer. Making it harder for outsiders to buy properties (the whole Brexit thing means...

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