Buy-to-let landlords could soon find it harder to secure finance to acquire property following the news that buy-to-let mortgage lenders may face more stringent regulations when calculating mortgages for those investing in the private rented sector (PRS).
Given that buy-to-let lenders are not supervised by the Prudential Regulation Authority (PRA), the Financial Conduct Authority (FCA) is growing increasingly concerned that lending standards in the sector may not be up to scratch and may ‘compromise’ the integrity of Britain’s financial system.
The City watchdog is now drawing up plans to tighten its scrutiny of buy-to-let mortgage lending and has already written to companies for which it has sole regulatory responsibility to inform them that it is considering intervening in the growing PRS.
According to a letter sent to affected firms by Philip Salter, the FCA's director of retail lending, which was obtained by Sky News, the city watchdog’s review of the buy-to-let lending sector would include “considering to what extent poor BTL underwriting by firms solo-regulated by the FCA might compromise the advancement of our objectives - in particular our objective to protect and enhance the integrity of the UK financial system, as well as the potential for poor BTL lending to affect the fair treatment of customers with regulated products”.
Earlier this year, the PRA, the banking regulator, published a consultation paper outlining plans for new affordability tests for borrowers, including a minimum ‘stressed’ interest rate of at least 5.5%.
The Bank of England estimates that banks are likely to extend their lending in the UK buy-to-let mortgage market, which is currently worth around £200bn annually, by about 20% a year over the next two years.