The Bank of England proposed rules to curb the explosive growth in the market for risky buy-to-let mortgages.
The BoE’s financial supervisory unit, the Prudential Regulation Authority, said it would tighten rules on the availability of buy-to-let mortgages, after a review into the market highlighted concerns about risk-taking.
The PRA said that while the property market continues to surge, “there is a risk that firms relax underwriting standards, thus affecting their safety and soundness.”
The main proposals from the PRA are to make sure lenders:
- consider how affordable the mortgages are long-term for borrowers.
- run tests on borrowers to make sure they can withstand an interest rate rise to at least 5.5% over five years.
- restrict lending to so-called portfolio landlords — people with four buy-to-let properties or more — because they have a higher propensity to default.
The buy-to-let market, and its potential to overheat, has been on the Bank of England’s radar for a while. According to Bloomberg, buy-to-let advances soared to 250,000 by the end of 2015, up from just under 100,000 back in 2010.
Here’s the chart from the central bank:
NOW WATCH: Money & Markets videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.