Nomura rounds up markets’ biggest misses in 2016

Forecasting markets a year in advance is never easy, but with “year-ahead investment themes” season well underway, Nomura has provided a handy reminder of quite how difficult it is, with an overview of markets’ biggest hits and misses (OK, mostly misses) from the start of 2016. The biggest miss among analysts, according to Nomura’s Sam […]

Continue Reading


Spanish construction rebuilds after market collapse

Property developer Olivier Crambade founded Therus Invest in Madrid in 2004 to build offices and retail space. For five years business went quite well, and Therus developed and sold more than €300m of properties. Then Spain’s economy imploded, taking property with it, and Mr Crambade spent six years tending to Dhamma Energy, a solar energy […]

Continue Reading


Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

Continue Reading


RBS falls 2% after failing BoE stress test

Royal Bank of Scotland shares have slipped 2 per cent in early trading this morning, after the state-controlled lender emerged as the biggest loser in the Bank of England’s latest round of annual stress tests. The lender has now given regulators a plan to bulk up its capital levels by cutting costs and selling assets, […]

Continue Reading


China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

Continue Reading

Categorized | Property

Buy-to-let borrowers to face more scrutiny

Posted on September 29, 2016

London 2012 - Districts Of London - Stratford...LONDON, ENGLAND - JANUARY 17: New apartments near the site of the Olympics on January 17, 2012 in London, England. The London 2012 Olympics will commence on July 27, 2012. (Photo by Peter Macdiarmid/Getty Images)©Getty

Lenders said the changes would reduce the number of landlords with only a small number of buy-to-let properties

Buy-to-let borrowers will face more scrutiny from January because of new affordability checks and mortgage repayment “stress tests”.

The Bank of England’s Prudential Regulation Authority will for the first time ask banks and specialist lenders in the sector to verify that landlords can afford to pay the mortgage in a scenario where interest rates rise to 5.5 per cent.

    It is also recommending that the “interest coverage ratio” — the ratio of rental income to mortgage payments — is at least 125 per cent.

    Lenders said these changes would further professionalise the market and reduce the number of landlords with only a small number of buy-to-let properties. The government has announced that from 2017 there will be new limits to the tax relief landlords can claim on mortgage interest payments and, as of April 2016, anyone buying a second property must pay an extra three percentage points of the value in tax.

    Though the BoE has said the interest coverage ratio should be at least 125 per cent, lenders are likely to set a higher threshold of 145 per cent, in anticipation that buy-to-let mortgages will be less affordable because borrowers are losing some of the tax relief on their interest payments.

    Lenders such as The Mortgage Works, a subsidiary of Nationwide, and TSB had already moved to 145 per cent during the PRA consultation on the changes. The effect will be that buy-to-let borrowers will be offered smaller mortgages against property values.

    Steve Olejnik from buy-to-let mortgage broker Mortgages for Business, said it was “the end of 125 per cent” for individual borrowers.

    “The Bank of England is assuming that every borrower is a higher rate taxpayer. If you feed that into your affordability model, then 125 per cent does not work.”

    Buy-to-let: the asset class that dare not speak its name

    Estate agents' 'Let By' signs stand outside residential properties in Romford, U.K., on Friday, March 11, 2016. Bank of England Governor Mark Carney and his colleagues have repeatedly said a surge in buy-to-let property investment may pose a risk to financial stability. Photographer: Chris Ratcliffe/Bloomberg

    A new generation of haves and have-nots — those who own a rental property and those who live in one

    However, he said the 125 per cent rate would still apply for landlord businesses held as limited companies — an increasingly popular form of ownership. Mr Olejnik said 63 per cent of his company’s buy-to-let borrowers were now buying through corporate structures, up from 18 per cent two years ago.

    The BoE made its initial proposals for tighter buy-to-let affordability rules in March, with the aim of preventing landlords from getting into difficulties if their income dropped or interest rates rose sharply. A consultation on the proposals ended in June.

    Strict new affordability checks for other parts of the mortgage market were introduced in 2014.

    As an alternative to the interest coverage ratio test, lenders can use a borrower’s personal income to justify a loan — but landlords will have to provide details of personal finances including evidence of income, pensions, savings, tax liabilities, credit card debt or car loans, utility bills and spending on food and childcare. “Lenders are going to have to be a lot more curious about customers’ income,” said Mr Olejnik.

    Questions arose during the consultation about whether lenders could assume that landlords would raise rents to help meet mortgage payments. The PRA has yielded some ground on this, allowing lenders to assume rental inflation up to 2 per cent a year.

    It has also waived a 5.5 per cent “stressed” interest rate test for fixed-term loans of five years or longer, though lenders noted it had reserved the right to change this if this type of loan became popular.