Lenders Action New Stress Tests For Landlords
New lending guidelines are to be launched which include stress tests, to make sure that landlords have the financial stability to manage their property investments in the event of higher interests rates. The changes mirror those currently found in the residential market, where stringent principles have been put in place by lenders to make sure potential home owners will have the money to afford their mortgage payments.
At present, lenders have the authority to put in place a framework to prepare for the official rules to be released by the Bank of England's Prudential Regulation Authority. It is hoped that a robust framework will protect lenders and landlords alike. Previously a lender would only run checks to make sure that rent income from the tenant would cover mortgage payments. Now the lenders have moved their scope to analyse a landlords own finances including their living costs and credit history to make sure future mortgage payments can be made should interest rates fluctuate and increase. Of course if a landlord fails this test, the loan will not be issued to them.
One contested topic is whether these tests should apply to re-mortgages. This matter has been addressed during The Bank of England's consultation period. They have stated that: “To avoid existing borrowers being adversely affected when re-mortgaging, the expectations do not apply to buy-to-let mortgages where no additional borrowing beyond the amount currently outstanding under the existing buy to let contact”.
In response to this, the Council of Mortgage Lenders stated “ We support the PRA's (Prudential Regulation Authority) approach to not apply their proposals to customers who simply want to remortgage without increasing the size of their loan, so borrowers are not unnecessarily prevented from getting a better deal when there is no extra risk”
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Author: Ryan Hinegan