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
Reasons to get a Buy to Let Mortgage
Yesterday
Following recent changes in the Buy to Let market, some investors may find this product less appealing. However, if done correctly, building a buy to let portfolio can be very profitable.
Stamp duty: how is it changing in 2025?
14 days ago
Helping you understand the upcoming changes in stamp duty (SDLT) from April 2025.
UK homebuyers and homeowners are hoping for stability in 2025.
We are hoping that mortgage rates will ease this year, but how drastically depends on inflation trends, swap rates, and the Bank of England’s decisions in which way the base rate should go.
Budgeting over the Christmas Period
3 Dec 2024
The most wonderful time of the year can easily turn into the most expensive time of the year. Watching the pennies doesn’t mean that the Christmas festivities have to stop, following a few budgeting tips can mean you still have a special Christmas and don’t go into the new year in debt.
Preparing your home to sell in winter
29 Nov 2024
December is usually a less desirable time to buy as many people don’t want to move over the holidays. However, prospective buyers do start to look at this time. Selling your home in winter may require a bit of extra attention to showcase your property at its best.
We look at why mortgage rates increased following the Bank of England's choice to reduce the bank rate, and should you fix now?
UK 2024 Autumn Budget: Housing
30 Oct 2024
On 30th October 2024 the Chancellor, Rachel Reeves delivered the Autumn budget which we had previously been warned would be “difficult”. Below we have summarised the main housing points.
Talking about money with kids
23 Oct 2024
In an increasingly cashless society, money is an intangible concept for children to grasp. In the days of coins and notes, kids could see money as something physical you require to purchase goods and services.
In order to help teach your children about money, we have listed some tips below;
More information
Trusted by
