Bid to rein in buy-to-let lending with stricter income and affordability checks

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Amateur landlords will face tighter borrowing rules and stricter affordability tests under plans by the Bank of England to crack down on buy-to-let lending.

The Prudential Regulation Authority (PRA) - the arm of the Bank that regulates banks and the financial sector - said it wants lenders to make income checks more stringent for buy-to-let investors and test whether they can still afford their regular repayments at higher interest rates.

Its clampdown comes amid fears that Britain's booming buy-to-let market is overheating, with the Financial Policy Committee (FPC) also separately warning that surging levels of lending to landlords pose a risk to the property market and financial system.

The PRA said while most lenders already met minimum requirements for lending to buy-to-let borrowers, it found some had weaker underwriting standards.

Concerns over buy-to-let lending were among a number of risks also highlighted by the FPC in its quarterly statement.

In minutes of its latest meeting, the FPC said: "The macroprudential risks centre on the possibility that buy-to-let investors could behave pro-cyclically, amplifying cycles in the housing market, as well as affecting the resilience of the banking system and its capacity to sustain lending to the wider real economy in a stress."

The Bank estimates that the plans to rein in buy-to-let lending could cut new approvals for buy-to-let mortgages by about 10% to 20% by the third quarter of 2018.