The Prudential Regulation Authority (PRA) is a part of the Bank of England and is responsible for the regulation and supervision of banks, building societies, credit unions, insurers and major investment firms.
It has recently extended various ‘affordability’ tests already in place for those lending to homebuyers so that buy-to-let investors will now also have to satisfy a variety of tests on affordability.
These tests will take into account rental income, the borrower’s income, essential personal expenditure and living costs, income tax liabilities, professional fees incurred through the ownership, the cost of voids, council tax, the cost of utilities and the management of the asset they are borrowing against.
In cases where rental income is likely to partially mitigate higher interest rates in the future, lenders may take this into account, but the assumption for increases in rental income should not exceed 2%, in line with the government’s inflation target.
Where a homeowner has been granted temporary consent to let, these rules will not apply. Furthermore, properties held under corporate arrangements are excluded as are holiday lets. Pound-for-pound remortgages are also excluded.
If you own more than 4 properties you may be classified as a portfolio owner, for which special rules apply.
Firms will be required to implement the changes to interest coverage ratio tests and interest rate stress tests by 1 January 2017, with the remainder to be implemented by 30 September of that year.
Related Articles:
- What is a Buy to Let Stress Test and Why do Mortgage Companies Use Them?
- How are Mortgage Affordability Scores Calculated?
- Why are landlords setting up a limited company to purchase buy to lets?
Download our Free First Time Buyers Guide
Recent posts
The Financial Conduct Authority (FCA) has published a discussion paper about the future of the mortgage market in a bid to improve access for first -time buyers, self-employed, and those borrowing in retirement.
Ever wondered where the most reasonably-priced towns for families to buy are? Property company, Zoopla has identified the top 10 towns for families to live in the UK by looking at the most affordable towns, and how many people are looking in that area.
Increase in zero-deposit mortgages in 2024
7 days ago
There was a 32% increase last year in 100% loan-to-value (LTV) mortgages which are mortgages that require zero deposit. According to a recent report by chartered accountants and business advisers, Lubbock Fine, the reason behind this is buyers simply struggling to save enough for a deposit.
Average savings by age in the UK
8 days ago
Many people are quite private when it comes to what is in their bank account. In this short blog, we look into what Brits have saved by age group.
Research from buy-to-let lender, Landbay, shows that UK landlords are looking at raising rents ahead of the Renters' Rights Bill which is due to come into force this year.
Data shows landlords could miss out on green mortgages due to expired energy performance certificates.
Buying a house is a big deal, and where you are planning to buy will make a difference financially. In this short blog, we look at the most affordable and most expensive areas and how much you need to be earning to buy in there.
Pros and Cons of Equity Release
20 May 2025
Equity release is a type of mortgage that allows homeowners 55 and over to access money from their property's equity without having to leave their home. This is done by securing a loan against the house which is usually repaid by selling the property when the borrower passes away or has to move into long-term care.
More information
Trusted by
