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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Scott Garnet
Scott Garnet 06 Nov 2017

If you have a patio or a porch it is important to make sure that any connecting doors are secured. Good advice for sliding glass doors is replacing the panels with storm resistant glass and getting heavier...

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richardrawlings
richardrawlings 01 Nov 2017

What has not been mentioned here is the effect of not only higher interest payments, but also that these payments are less likely to be offsettable as a business cost due to the scaling back of mortgage...

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Kelvin Lloyd
Kelvin Lloyd 09 Oct 2017

IT is up, to the Planners. If they will only give permission for bungalows on certain (suitable) sites, they will be built.

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maggie swift
maggie swift 09 Oct 2017

It's just the beginning of the shocking rise.

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maggie swift
maggie swift 09 Oct 2017

I have recently read that the bungalows can provide social housing for elderly residents in London.

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zoe glover
zoe glover 05 Oct 2017

Update! Worst company I have ever dealt with. Undervalued a Cambridge property by over 100k, wont take on any evidence of valuation including a RICS valuation done 3 years ago for the very same value...

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Paul Edwards
Paul Edwards 27 Sep 2017

Its nonsense articles such as this that make it harder to get clients to realise just how difficult the market is out there. When you see Rightmove and there are more 'price reduced' then 'new' most days...

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Tom Allen
Tom Allen 20 Sep 2017

Absolutely agree with you!

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RyanGeo
RyanGeo 18 Sep 2017

A sharp correction would be a less dramatic expression to use. That is already underway in certain sectors in Reading where I practice as Chartered Surveyor

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sean benton
sean benton 01 Sep 2017

Identity theft is a thread for any profession. So,people should stay alarmed. I once take help from a letting agent and came to know that letting agents are taking every precaution to prevent fraudulent...

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Mark N.
Mark N. 30 Aug 2017

We have seen a surge in instructions over August and that should continue into September too.

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Chris
Chris 30 Aug 2017

Unfortunately, all the legislation bears its force on Landlords and ignores, naively, the effect of Rogue Tenants on the ability of landlords to keep houses in repair and offer properties for rent at reasonable...

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