Buy-to-let investors could soon face tighter borrowing criteria, following news that mortgage lenders may face more stringent regulations when calculating deals for those investing in the sector.
The Financial Conduct Authority (FCA) is growing concerned that standards in the sector could be falling and that this could compromise the integrity of the UK’s financial system.
At present, buy-to-let lenders are not supervised by the Prudential Regulation Authority. Now, the city watchdog is making plans to tighten the scrutiny of buy-to-let mortgage lending. It has already written to companies over which it has regulatory responsibility to tell them it is thinking of intervening in the expanding private rental sector.
A letter sent to affected firms by Philip Salter, the FCA’s director of retail lending, reveals the watchdog’s review of buy-to-let lending would include, ‘considering to what extent poor BTL underwriting by firms solo-regulated by the FCA might compromise the advancement of our objectives – in particular our objective to protect and enhance the integrity of the UK financial system, as well as the potential for poor BTL lending to affect the fair treatment of customers with regulated products.’
Earlier on in the year, the Prudential Regulation Authority published a consultation paper, which put forward plans for new affordability tests for borrowers. This included a maximum, ‘stressed,’ interest rate of at least 5.5%.
The Bank of England believes banks are more than likely to further their lending in the UK buy-to-let mortgage market. This is estimated to be currently worth about £200bn over the course of a year. Under the changes, this could rise by 20% per year over the next two years.