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| Landlords should face new affordability tests, says Bank of England | Landlords should face new affordability tests, says Bank of England |
| (35 minutes later) | |
| Buy-to-let landlords should face new limits on the amount they can borrow, the Bank of England has proposed. | Buy-to-let landlords should face new limits on the amount they can borrow, the Bank of England has proposed. |
| It suggested that lenders should be much stricter when deciding whether or not to grant landlords a mortgage. | It suggested that lenders should be much stricter when deciding whether or not to grant landlords a mortgage. |
| Instead of just taking their rental income into account, the Bank wants lenders to look at their wider financial situation as well. | Instead of just taking their rental income into account, the Bank wants lenders to look at their wider financial situation as well. |
| If adopted, the new rules could reduce lending to landlords by up to 20% over the next three years. | If adopted, the new rules could reduce lending to landlords by up to 20% over the next three years. |
| The Prudential Regulation Authority (PRA) - an arm of the Bank - has recommended that banks and building societies take account of: | The Prudential Regulation Authority (PRA) - an arm of the Bank - has recommended that banks and building societies take account of: |
| Future growth | |
| The PRA said the new standards would "curtail inappropriate lending, and the potential for excessive credit losses." | The PRA said the new standards would "curtail inappropriate lending, and the potential for excessive credit losses." |
| The Bank's Governor, Mark Carney, warned in December that mass-selling by landlords could destabilise the economy. | The Bank's Governor, Mark Carney, warned in December that mass-selling by landlords could destabilise the economy. |
| The PRA has also suggested that lenders should apply a stricter interest rate "stress test", to measure affordability in the event of a rise in interest rates. | The PRA has also suggested that lenders should apply a stricter interest rate "stress test", to measure affordability in the event of a rise in interest rates. |
| It said lenders should look at potential rate rises over a five year period from the start of a mortgage. | It said lenders should look at potential rate rises over a five year period from the start of a mortgage. |
| They should also consider whether a landlord could afford repayments in the event of a 2% rise in interest rates. | They should also consider whether a landlord could afford repayments in the event of a 2% rise in interest rates. |
| The PRA said that 75% of lenders already meet these stricter criteria. However it is thought that some of the major lenders do not. | The PRA said that 75% of lenders already meet these stricter criteria. However it is thought that some of the major lenders do not. |
| 'Interference' | |
| Landlords already face a series of tax changes, which it is thought will limit the growth in the buy-to-let market. | Landlords already face a series of tax changes, which it is thought will limit the growth in the buy-to-let market. |
| These include a 3% stamp duty surcharge from next month. From 2017, landlords will only be able to claim tax relief on their mortgage payments at the basic rate of 20%. | These include a 3% stamp duty surcharge from next month. From 2017, landlords will only be able to claim tax relief on their mortgage payments at the basic rate of 20%. |
| From 2019 they will also have to pay any Capital Gains tax due within 30 days, rather than simply by the end of the tax year. | From 2019 they will also have to pay any Capital Gains tax due within 30 days, rather than simply by the end of the tax year. |
| As a result some experts accused the Bank of acting too late to control the buy-to-let market. | |
| "This is a classic case of slamming the stable door after the horse has bolted," said Jeremy Leaf, a former chairman of the Royal Institution of Chartered Surveyors. | |
| "The changes the Chancellor has made to mortgage interest tax relief and higher stamp duty for landlords will have enough of an impact on buy-to-let without the need for further interference from the Bank of England." | |
| Before the PRA announcement lenders had expected the buy-to-let market to expand by 20% a year over the next few years, in spite of the tax changes. | Before the PRA announcement lenders had expected the buy-to-let market to expand by 20% a year over the next few years, in spite of the tax changes. |
| If the measures are adopted, the PRA believes such growth will slow to 17% a year. | If the measures are adopted, the PRA believes such growth will slow to 17% a year. |
| The PRA consultation will last until 29 June 2016. | The PRA consultation will last until 29 June 2016. |