The Council of Mortgage Lenders (CNL), in its submission to a Prudential Regulation Authority (PRA) consultation exercise on possible further lending restrictions, has warned the PRA (part of the Bank of England) to beware of imposing too many restrictions on buy-to-let lending.
Buy-to-Let mortgage applications have already been subject to increasing scrutiny says CML where mortgage firms have progressively tightened their lending criteria. This has been in response to a range of measures affecting the sector: a 3% stamp duty surcharge on second properties, taxation changes limiting mortgage interest relief, and other measures resulting from the Bank of England’s “stress testing” on buy-to-let lending.
It is also now uncertain whether the Bank will be adjusting its plans in response following the Brexit vote in the EU referendum.
The CML write:
On top of the measures noted above, “As the industry continues to respond to these headwinds, we believe there is a risk that the PRA’s proposals could magnify the effects on the buy-to-let sector. It is possible that the cumulative impact of intervention targeted at the buy-to-let sector could affect its strength and sustainability.
“We also reject the argument that it is only possible to achieve further growth of the buy-to-let sector by relaxing underwriting standards and thereby increasing prudential risks.
“Levels of buy-to-let arrears are currently little more than a quarter of those in the residential mortgage sector – which are themselves near an historic low point. And even though lenders do not extend the same levels of forbearance to landlords as they do to residential borrowers, fewer than one buy-to-let property in 2,500 is taken into possession.
“Our response sets out our views on a range of issues, including assessing affordability for buy-to-let borrowers, interest rate stress testing, alignment with existing regulation governing residential mortgage lending, and the timetable for implementing new rules.”
One pertinent point highlighted in the CML’s submission to the PRA is that lenders should be able to take into account future increases in rent when assessing the future affordability of borrowers.
“If lenders are expected to build into their calculations the effects of higher interest rates on the costs of running their businesses, it is also reasonable that they should be able to anticipate higher rental income. In many cases, rent increases are already written into the contract between landlord and tenant,” says the CML.
CML warns of excessive buy-to-let rules https://t.co/Px1U5lEOEo
— LandlordZONE (@LandlordZONE) July 13, 2016