Big Lenders Rein In Buy-to-let Mortgages



Three of Britain’s biggest mortgage lenders are reining in buy-to-let mortgages as fears grow that the market could be overheating.

Barclays, Lloyds Banking Group and Nationwide Building Society are all limiting growth in lending to landlords after the Bank of England warned that it is keeping a close eye on the booming market.

Buy-to-let investing dived following the financial crisis, in part because house prices fell but also because some banks including specialist landlord lenders cut back lending sharply as funding streams dried up.

But the market is now roaring back – buy-to-let lending increased by 39pc in 2015 to its highest level since 2007, according to the Council of Mortgage Lenders.

Last month the pace increased again, driven by a stamp duty hike on second homes coming into force in April. As a result overall mortgage lending in March jumped by 59pc on the year.

Banks sought to reassure investors and customers that their loans are responsible.

“We have decided, in terms of prudent risk attitude given the growth is from buy-to-let, and also to preserve margins, we have decided to slightly grow less in mortgages,” said Lloyds’ chief executive Antonio Horta-Osorio.

He has modified the bank’s plans to grow more quickly in consumer loans, keep up the pace in small business lending, and trim mortgage growth.

Meanwhile Barclays’ chairman John McFarlane told the bank’s annual general meeting that “banks including ourselves have tightened our lending criteria particularly in the buy to let market.”

He stressed that the market is not yet in danger, and this is a pre-emptive measure: “There is actually very little stress in the market as far as our lending is concerned, it is not leading to an increase in loan losses, it hasn’t come through in terms of higher risk.”

One key change at Barclays is to assess buy-to-let borrowers’ own home mortgage payments when considering whether or not they can afford a loan to buy a rental property, rather than only considering the rent they will receive from tenants.

The bank already wants customers to show they can afford 135pc of the loan’s interest payments, rather than the more standard rate of 125pc.

Meanwhile Nationwide is to require landlords’ rental income to cover 145pc of their interest payments, an even more strenuous test of affordability.

The building society said the checks need to become tougher as landlords will soon be hit by changes to tax relief which will reduce returns on their properties.

The announcements come after the latest Bank of England warning on the buy-to-let market.

“A good rule of thumb for financial stability is that when some form of credit is growing fast one needs to look very carefully at whether lenders’ underwriting standards are slipping and at what is happening to the distribution of borrowers’ indebtedness,” said Sir Jon.