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

MBM Homelets
MBM Homelets 23 Mar 2017

Although this is a very positive step, there is little or no guarantee of the standard of workmanship employed by the tenants. We have had experience of a professionally decorated property being ' painted'...

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ajay
ajay 21 Mar 2017

How is the "robust evidence" looking now?

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NathanG
NathanG 20 Mar 2017

I've been watching the series so far and am completely baffled by the cases that were presented. Though, I don't think that we can protect ourselves from every scam possible - it will just make the scammers...

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Landlady14
Landlady14 01 Mar 2017

You would think so Niraj Shah! My experience only proves that there are varying qualitiers of professional in all aspects of property letting. None of the ones I have dealt with, from letting agents to...

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Mark
Mark 01 Mar 2017

Thanks for this article. Hopefully one day everybody's lifestyle will be eco-sustainable.

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Ben Taylor
Ben Taylor 28 Feb 2017

I was convinced that London was the most expensive!

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Alan Read
Alan Read 28 Feb 2017

Australia are leading the way in this I think. The trouble with Britain is we don't get enough sun to make use of solar power.

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James Powell
James Powell 27 Feb 2017

This is a very good news.

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DanHumphreys
DanHumphreys 27 Feb 2017

It sounds like a good idea. Anything to help the younger generation get a foothold.

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Matt
Matt 20 Feb 2017

Is this fake news?

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Matthew Hollywood
Matthew Hollywood 07 Feb 2017

Matthew Hollywood - Director Mishon Mackay Land & New Homes - Brighton The shortage of New Homes is in part effected by the lack of land sales. Land sales are held back because there is a disparity between...

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CommercialTrust
CommercialTrust 30 Jan 2017

Hi Graham, Would be interesting to see the above figure calculated against an investment via a Lt Company /SPV structure and if the investor found themselves pushed in to the higher tax bracket. Mortgage...

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