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:

 

Download our Free First Time Buyers Guide

Recent posts

Friyay Rate Reviews

24 days ago

Every Friday our experts search the market for the latest rates from every lender saving our clients some serious £'s!

Looking to Extend?

28 days ago

Are you looking to extend your property? There are many benefits to adding an extension to your existing home, here are a few. 

Put simply, Equity Release is where you can release equity (money) tied up in your home for any purpose you like. In this short article, we share some reasons why you may want to consider Equity Release.

The team at Mortgage Required may not be able to lower the prices in your local supermarket, but we have come up with a list of tips to help you lower your food shopping bill.

Every year Big Energy Saving Week takes place to raise awareness about energy efficiency, reducing energy bills, and combating fuel poverty. Below are some ways you can get involved and hopefully make a saving!

In this blog we look at what happened in the housing market in relation to house prices last year, and look ahead at the forecast for 2024.

With many of us putting our feet up on 26th December after a full-on day of festivities, there are a significant number of people who find themselves checking out property portal sites!

Everyone has their own traditions at Christmas time, but we have put this short blog together to help you get ready for the festive period ahead.