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
Choosing which fixed rate to go for has been a dilemma for many of our clients so far this year. There really isn’t a right or wrong answer, but below we will look into the pros and cons of a two-year and five-year to help you make the right decision for you.
Best UK Mortgage Rates this Week
13 days ago
Here are the lowest fixed mortgage rates of the week, available to first-time buyers, home movers, buy-to-let, and those remortgaging.
Call us for more information: 01628 507477 or email: team@mortgagerequired.com.
Stamp Duty Rush as Deadline Looms
14 days ago
According to Rightmove, a whopping 500,000 UK homebuyers are rushing to finalise their home purchase before the new Stamp Duty rules change in April.
The UK government is introducing new rules for Energy Performance Certificates (EPCs) that will impact landlords. Here's a summary of the key changes
Should I buy or rent in 2025?
21 days ago
Choosing to buy a house is one of the biggest decisions you are likely to make in your lifetime. There are many factors that influence a house purchase, these include: finances, housing market conditions, and mortgage rates.
ISAs: what are they, and which one is for me
24 days ago
Since being launched back in 1999 Individual Saving Accounts (ISAs) have been very popular for those wanting to put money into savings. There are four types of ISA, and the majority allow flexible saving and the ability to withdraw funds easily. There are financial penalties on certain products, these usually pay the most interest.
Benefits of buying a new build home
28 Feb 2025
According to the Office for National Statistics, last year (ending March 2024), there were 153,800 new homes completed in the UK. To help the housing crisis, the UK government has pledged to build 1.5 million new homes in the next five years.
Check out some of the reasons why a new-build home might be for you.
Many households are still being affected by the high cost of living, with several people worrying about how they can make ends meet on a monthly-basis. Unfortunately, the cost of bills including, water, council tax, and energy are still rising. Here are some things you can do.
More information
Trusted by
