Bank of England tightens up rules on buy-to-let mortgages

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The Bank of England’s Prudential Regulation Authority is introducing tighter regulations for lenders offering buy-to-let commercial mortgages, says in a September 2016 article.

Under the new rules, lenders must look at borrowers’ expenses including personal income and tax liabilities. They also need to be able to afford payments if the interest rate rises to 5.5%, The Telegraph clarifies in an article from the same month.

A new underwriting process will be introduced for ‘portfolio landlords’, which is the name given to landlords with four or more mortgaged properties. They will be required to present more detailed information about their income and liabilities.

The Bank of England also wants landlords with commercial mortgages to receive a minimum of 125% of their mortgage payments in rent.

The Bank of England’s aim in creating these tougher regulations is to prevent landlords from getting into financial difficulties if their income drops or interest rates rise sharply. The Bank of England’s intention is to ensure that borrowers can comfortably afford their monthly mortgage payments for the lifetime of the mortgage.

The changes will probably be introduced in January 2017, with further changes later in 2017. Some lenders are already voluntarily implementing the changes by introducing stricter affordability checks on borrowers.

The Prudential Regulation Authority will review buy-to-let mortgages in early 2018 to assess how lenders are implementing the changes.

According to a Financial Times article from September 2016, the changes could make buy-to-let landlords more professional, but could put off landlords with only one or two properties.

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