The Bank of England’s Prudential Regulation Authority (PRA) has proposed tougher underwriting conditions, reported MoneyMarketing.co.uk in October 2016.
There are some types of loans that will be exempt from the new conditions, and this could change landlords’ investment strategies.
The PRA wants a minimum interest of 5.5% for the first five years of a commercial mortgage, and the figure will not be affected by changes in the Bank of England’s base rate. The PRA wants these new interest rates to be introduced in the beginning of 2017.
There are exceptions that are not covered by these proposals, which include holiday lets, bridging loans, property investment lending and corporate lending. This could mean that more landlords will form companies to purchase properties, or consider the holiday let market in order to get better commercial mortgages rates. The PRA is going to monitor lending for these exemptions and may propose future changes.
Most buy-to-let mortgages are at two- or three-year fixed rates. Five-year fixed rate deals will not be covered by the new regulations, and this could influence more lenders to offer deals of such a nature.
Affordability checks by lenders consider rental levels, and the PRA said that confirmed rent rises could be part of the affordability criteria.
If commercial mortgages become more expensive, it could put off many landlords who only have one or two properties. So-called portfolio landlords – those with four or more properties – are expected to continue to invest in buy-to-let properties.