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
UK Housing Market Round-Up: 2025
6 days ago
Property search site Zoopla has estimated that the UK housing market will end 2025 with approximately 1.15 million completed sales – 4.5% more than the previous year.
Take a look at the 2025 summary of the UK housing market.
Best UK Mortgage Rates this Week
6 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.
Buying in the New Year
7 days ago
If buying your first property, or moving home, is on your to-do list this year, the new year can be a great time to take this big step. In this short blog, we look at what you need to consider as you plan and prepare for your home-buying journey.
Just because the Bank of England decides to reduce the base rate, this doesn't automatically mean that your mortgage rate will go down.
Autumn Budget 2025: A Summary
26 Nov 2025
Chancellor, Rachel Reeves, has delivered the Autumn 2025 budget. We have summarised the government's plans for tax and spending.
Renters' Rights Act
14 Nov 2025
The Renter’s Rights Bill became law at the end of October, which means it has been signed off by the King, and it is now the Renters’ Rights Act. Despite this becoming law, these changes are likely to start changing within the next six months, with the aim of being fully implemented throughout 2026 and into 2027.
A welcome change in school is coming as financial literacy is due to become compulsory in schools in England.
The Government has announced that as part of the new national curriculum, children in primary and secondary education will be required to learn about budgeting, compound interest, managing money, and mortgages.
The top 10 most beautiful villages in the world
24 Oct 2025
Forbes has published a global ranking of stunning locations and one popular picturesque corner of the UK has nabbed top spot.
More information
Trusted by
