Lenders must tighten rules for buy-to-let by January 1, says Bank

Lenders will have until January 1 to introduce new tougher requirements for buy-to-let borrowers, according to a deadline set by the Bank of England.

The Prudential Regulation Authority has set out a timetable for lenders to tighten up criteria for buy-to-let borrowing following a consultation which started in March.

Lenders will have to require landlords to have higher levels of rent relative to their mortgage costs, as well as stress-testing all new mortgages at a rate of 5.5%, by January 1 next year.

However, lenders will be able to factor in rent rises of up to 2% a year when deciding whether a landlord will be able to afford a property, a factor which they were not allowed to take into account before.

The PRA will also require landlords with four or more properties to give out more information about their income and debts.

The tougher new regime comes ahead of changes to tax on landlords’ income due to be phased in from April next year.

The new rules will remove the ability of higher and additional-rate taxpaying landlords to deduct their mortgage interest from their rental income before calculating their tax bill.

Landlords with multiple properties held in their own names, and with large mortgages, will be in particular danger of making ongoing losses.

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