BOE Warns Landlords More Vulnerable to Interest Rate Rise

The Bank of England is scrutinising the terms under which mortgages are being granted to buy-to-let landlords for fear they could be more vulnerable than other borrowers to a rise in interest rates.

Outlining its latest set of concerns about the rapidly growing buy-to-let sector, the Bank said it was on the lookout for any relaxation of the lending criteria being offered by mortgage companies, such as reducing the size of deposits or income requirements.

The buy-to-let sector has driven growth in the mortgage market since the 2008 financial crisis and the flow of lending in 2015 is close to its pre-crisis peak. In the first nine months of 2015, buy-to-let lending rose by 10% compared with 0.4% for owner-occupied homes.

The terms of buy-to-let loans are often less stringent than for owner occupiers. Lenders require rental income to exceed 125% of interest payments at a mortgage rate of 5% to 6%. Homeowners are required to meet a higher interest rate test of 7%. The Bank found that if mortgage rates were to increase by three percentage points, nearly 60% of buy-to-let customers would breach the test while only 4% of homeowners would be likely to experience repayment difficulties.

via The Guardian

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza