A recent Financial Stability Report says the Bank is not going to look favourably on any relaxation of the lending criteria being offered by mortgage companies, such as reducing the size of deposits or income requirements. "The committee remains alert to the rapid growth of the UK buy-to-let market, and potential developments in underwriting standards as the sector could pose a risk to broader financial stability," the Bank of England says in its report. Lending to landlords has been a key factor in the mortgage market in the past two years and some reports suggest it is now close to its pre-crisis peak.
In the first nine months of 2015, buy-to-let lending rose by 10 per cent and last year regulations limiting the number of owner-occupier mortgages worth more than 4.5 times the borrower's income and implementing stress tests on the borrower's ability to repay came in but these rules do not apply to buy to let. “The Bank of England reports that Buy to Let investors are often subject to less stringent affordability tests than owner occupiers. Affordability is typically tested by ensuring that rental income exceeds 125 per cent of loan interest, assuming mortgage rates in the range of five to six per cent, whereas owner occupier’s affordability is typically tested at seven per cent” says Jefferies.
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Source: Letting agent today
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