Understanding the new restrictions on buy-to-let mortgage lending

New lending regulations on buy-to-let, proposed by a leading Bank of England body, have raised eyebrows among lenders, but what do they actually mean for new property investors?

The proposal, put forward by the Prudential Regulation Authority, aims to ensure that underwriting standards aren’t allowed to slip, and that control on buy-to-let lending is monitored and retained over the next few years.

The PRA proposes that lenders need to be more mindful of how much cash their borrowers have to cover their interest repayments in the event of rate rises of up to 5.5 per cent. Ultimately, such measures could reduce the number of buy-to-let approvals by between 10 and 20 per cent by 2019.

Chancellor George Osborne stated before Easter that it was highly likely that there would be a further clampdown on the availability of buy-to-let mortgages and, if approved by the Bank of England, the measures are likely to be implemented this summer. This follows the introduction of an additional 3 per cent stamp duty surcharge and amendments to tax relief for landlords, both outlined in the 2016 budget.

Up to three quarters of lenders already meet these new standards, according to the PRA, but some of the biggest lenders are still using interest rates below the new levels to be set by the authority.

These changes are likely to have greatest impact on smaller landlords, and may deter potential property investors in the future. Horton and Garton has extensive experience in buy-to-let and has advised potential landlords in a variety of circumstances. For advice on investing in property in West London and lettings management in the W6 and W12 area, visit our landlords page and get in touch.