The Prudential Regulation Authority (PRA) is examining how five year fixed commercial mortgages are being used for buy to let property purchases. They are mainly concerned with portfolio landlords who have four or more mortgaged properties.
The PRA wants to know that lenders are providing
good deals in their five-year fixed mortgages. Fixed term commercial mortgages generally charge more interest than variable loans, but borrowers know that the rates will not rise until the mortgage period ends after five years.
The PRA is also monitoring how new affordability rules are operating for landlords. When assessing mortgage applications, the rents charged need to be equal to about 125% to 145% of the mortgage payments. Affordability checks will also look at the income from other property. Lenders are concerned that landlords do not overextend themselves and are well able to keep up with the monthly mortgage repayments. Lenders want their loans to be as risk-free as possible.
The PRA has not discussed its findings as it is still in a monitoring period. The PRA sees landlords as consumers as well as investors and wants to make sure that they are protected and lenders are treating them fairly.
New affordability rules and mortgage options mean that mortgage brokers are working harder to find the best deals for their clients. They must educate their client landlords about how stricter lending criteria can affect them. More complicated rules, however, have not affected the number of mortgages sold by brokers.