The Bank of England’s Prudential Regulation Authority is telling lenders to exercise more scrutiny on loans for buy to let properties.
In a letter to lender chief executives the Bank of England’s executive director - David Bailey - warns that the market should prepare itself for “a prolonged period of credit stress.”
He says: The operating environment for firms remains challenging. The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply-chain disruptions is expected to pose challenges to firms' credit portfolios."
The enhanced scrutiny should also be applied to loans to small businesses, mortgages for commercial properties, and unsecured personal loans, which the Bank’s PRA believes may also be vulnerable during the current cost of living crisis.
Specifically the letter says: “The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios. Firms need to be ready for a prolonged period of stress.
“In recent years, including through events like the Covid-19 pandemic, firms have tightened underwriting standards, enhanced forbearance tools, and increased operational preparedness for collections. However, these enhancements are untested under the current combination of risk factors.
“Therefore, it is important that firms ensure their credit risk management practices are robust, portfolios are closely monitored, customer support and collections arrangements are appropriately scaled, and expected credit loss provisions are recognised in a timely manner.”
According to the most recent data from UK Finance - the lenders’ trade body - the total value of buy to let mortgages taken out in 2019 (the last normal year before the pandemic) was £39.5 billion, £10.2 billion of which was attributed to the purchase of new properties and £29.3 billion for remortgages.
A separate analysis by lettings agency Hamptons says that in the first quarter of 2022, some £8.5 billion worth of buy to let properties were bought by landlords, mostly with mortgages. The majority of deposits from landlord buyers are around 25 per cent according to UK Finance.
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Regulatory Authority 20 years too late.
Also if you are Stress testing Landlords it’s Doctor’s you need not Bankers.
Well said Michael. They can stress test all they like..... This landlord won't be affected, there's no way I'd ever buy another but to let!
In my experience BTL lenders have been very cautious for at least the last 12 months. Very picky on new purchases and lowish valuations on remortgaging. Typically between 10% and 25% below asking prices of identical or inferior neighbouring properties.
As long as we're with lenders who do end of fix product switches everything will be fine as long as tenants can afford the rent increase necessary to cover the increase in the mortgage payment. Plus a bit to cover the extra Section 24 tax. Anyone wanting to release equity may find the valuation for a remortgage is much lower than expected and the product fee is astronomical.
Of course it could go the other way if lenders are awash with money now the rest of the market has ground to a halt. We may find that they're so keen to lend they start actively competing for our business.
Agree lenders already over cautious and it's impossible to release equity. I looked at changing lenders for one and they wanted me to put money in because rent too low for their calculations!! LTV was less than 50%. Hoping as you say they will have money to lend soon due to having targets to meet!!
Landlords costs have risen dramatically like everyone else’s costs.
We have the extra Statutory Compulsory Costs enforced upon us, to make sure and clear the decks for Big Boy to take over, if they wanted people housed and we are already do it, why would they go out of their way to Destroy us.
IF ! labour get in Simon ? I'll put money on that they will, then god help the self employed and businesses.
The writing is on the wall for this industry as a private Landlord.
Firstly the bank made it too easy, 125% mortgages etc as they greedily sucked up this business. Now they want to kill off the industry by making it unworkable in conjunction with section 24.
I'm lucky as I can sell some properties to clear most of my mortgages and then go back to having a reasonable income. If a tenant leaves in one of these mortgage free houses I will then have a decision to make, which will probably be to sell.
I'm all for being fair but this proposed Reform Bill is just too much for me to swallow.
If Bank of England decides that interest rates still need to keep going up, then we will be in for a rocky ride.
Well said, I am thinking the same thing, the PRS is on the wain and if Labour get in then god knows what will happen 😰
They are having a laugh. BTL finance is already severely restricted due to stress testing at 8%. So for a modest property of say £150,000 on 75% LTV the rent would need to be over £1000 pcm. Remortgaging is possible with product transfer, but you will be lucky to release any equity now. This all leads to either higher rents or selling the property if you need some cash. Not good outcomes for tenants either way.
Rt
And ??
Hunt reducing Capital Gains Tax also makes it painful to sell up as huge chunks of profit have to be handed over to Hunt. I see no way out. Sell up and hand over huge chunks of your equity or carry on and be screwed paying tax on gross rather than net profits and to top it all have to splash out reserves to get ECP C certificates. I have 8 btl and 6 now have ECP of C. The other two are lovely large Victorian terraced houses with D ratings. They will need huge investment to bring up to C rating to save about £80 per year for tenant.
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