Mortgages  

FCA eyes buy-to-let mortgage crackdown

FCA eyes buy-to-let mortgage crackdown

The crack-down on buy-to-let could continue as the Financial Conduct Authority says it is looking at bringing in tougher standards.

The FCA has said it may bring in similar rules to the Prudential Regulation Authority, which acted last week to stamp out relaxed underwriting standards.

While the PRA regulates mortgage lenders which also take deposits, the FCA regulates all other lenders.

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Among the new rules the PRA announced last week was a minimum affordability stress test interest rate for borrowers of 5.5 per cent for the first five years of the mortgage.

The PRA has also said that lenders can take rent increases into account for affordability purposes but they should not exceed the government's inflation target of 2 per cent, while lenders should use rental demand and local rent levels to assess a property's minimum interest coverage ratio.

The FCA has written to the lenders it regulates telling them that it is also considering action.

In its letter the FCA said: “We are currently considering our approach for firms who are not covered by the PRA supervisory statement.

“This includes to what extend poor buy-to-let underwriting by firms solo regulated by the FCA might compromise the advancement of our objectives – in particular our objective to protect and enhance the integrity of the UK financial system, as well as the potential for poor buy-to-let lending to affect the fair treatment of customers with regulated products.

“There is a risk that poor standard of lending could emerge in firms that would not be subject to the PRA’s proposals. We will actively monitor the non-bank lending sector of the buy-to-let market to ascertain whether we need to intervene to advance our operational objectives.”

Last month the FCA’s mortgage sector manager Lynda Blackwell expressed concern about the growth of the mortgage market, saying the regulator has already started to see sub-prime and a tolerance of poor payment histories.

She warned about a "race to the bottom" as lenders try to grow their businesses in a market which is saturated but where mortgage activity is below trend.

The PRA has also said that when assessing their minimum interest coverage ratio, lenders should take into account rental demand and rent levels in the property’s area, taking into account any tax liability associated with the property including mortgage interest tax relief.

In recent months increasing numbers of lenders have been demanding rental coverage of 145 per cent rather than 125 per cent, which has been prompted by former chancellor George Osborne's decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest to the basic rate.

Mike Richards, director of London-based Mortgage Concepts Associates, said: "The buy-to-let market is one of the few areas of the housing market that is buoyant and they are trying to kill it off completely.