Bank of England seeks to rein in landlord lending

The Bank of England has recommended tighter lending criteria for buy-to-let mortgages and it is monitoring for signs that risks are accelerating.

The Prudential Regulation Authority — the UK’s main banking supervisor and part of the central bank — published guidelines yesterday to guard against a loosening of underwriting standards and bring all lenders into line on the affordability of buy-to-let loans.

The assessment should include a minimum, stressed interest rate of 5.5%, and will curb growth of the £200bn (€253bn) market.

“Some lenders are currently applying less rigorous underwriting standards than the market norm,” the PRA said.

Banks should “take into account the borrower’s costs associated with letting the property, including tax liabilities.”

The move is part of a clamp-down on property investment, which bank officials say is a growing threat to financial stability.

With the UK benchmark interest rate at a record low of 0.5% for the past seven years, the central bank’s Financial Policy Committee is on the front line of the response to housing-market risks.

Banks plan to expand buy-to-let lending by 20% per year, the bank said.

The PRA’s proposed underwriting standards would probably reduce this figure by 10% to 20% over three years.