Mortgage stress test for buy-to-let

Bank of England Governor Mark Carney has attempted to prevent a credit boom from derailing economic recovery by imposing restrictions on large loans and a cap on the proportion of large mortgages that a bank can issue in comparison to a borrowers income. However, these changes do not affect buy-to-let.

Despite the rental sector avoiding the four and a half times multiple income cap , Prudential Regulation Authority head Andrew Bailey said it was not being ignored, and would be monitored through the market stress test which was unveiled in March this year. He claimed that the income-multiple cap would not be suitable to control buy-to-let lending due to the fact that the ‘income dynamic’ relative to rental payments was dissimilar to the way in which residential property owners income was affected by mortgage payments.

In the proposed stress test, Lenders’ balance sheets have to be shown to be able to withstand a 35 per cent drop in house prices as they were in the final quarter of 2013, and a bank base rate rise to 4 per cent.

Bailey said: ‘We are looking across the whole market for signs of stress. You can be assured we will be monitoring it.’

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