Yet another blow for buy-to-let

The buy-to-let sector has continued to come under pressure after the Bank of England’s regulatory arm expressed concerns.

The buy-to-let sector continued to come under pressure last week as the Bank of England's regulatory arm, the Prudential Regulation Authority, released a consultation paper on the buy-to-let mortgage market. The Bank has expressed concerns about lending standards in the market in the past, and it had been expected to suggest limits on the quantity of such loans that banks could write, or force them to set aside more capital against these mortgages. However, in the end its main recommendation was for stronger affordability tests, including a stricter income verification process.

Lenders will have to look more closely at a borrower's ability to cover both mortgage payments and associated property costs (including taxes) through either rental income or their own resources. When assessing affordability it now wants banks to assume that rates will go up by 2% from current levels, with a minimum level of 5.5%. Overall, the Bank expects these changes to reduce gross buy-to-let lending by around 10%-20% over the next two to three years.

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Dr Matthew Partridge
Shares editor, MoneyWeek

Matthew graduated from the University of Durham in 2004; he then gained an MSc, followed by a PhD at the London School of Economics.

He has previously written for a wide range of publications, including the Guardian and the Economist, and also helped to run a newsletter on terrorism. He has spent time at Lehman Brothers, Citigroup and the consultancy Lombard Street Research.

Matthew is the author of Superinvestors: Lessons from the greatest investors in history, published by Harriman House, which has been translated into several languages. His second book, Investing Explained: The Accessible Guide to Building an Investment Portfolio, is published by Kogan Page.

As senior writer, he writes the shares and politics & economics pages, as well as weekly Blowing It and Great Frauds in History columns He also writes a fortnightly reviews page and trading tips, as well as regular cover stories and multi-page investment focus features.

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