Tougher checks on lending to buy-to-let investors are on the cards after the Bank of England warned it would scrutinise risky areas more heavily due to rising interest rates and a surge in inflation.
It has told banks that lending to landlords and small businesses will face greater oversight, as well as borrowing on credit cards as it braces itself for a wave of defaults.
David Bailey, executive director at the Bank’s financial watchdog, the Prudential Regulation Authority, says lenders have already become more careful about their lending, however, he warns these measures were “untested under the current combination of risk factors”.
Robust practices
“Our assessment of firms’ credit risk management will include a focus on traditionally higher risk areas including retail credit card portfolios, unsecured personal loans, leveraged lending, commercial real estate, buy-to-let, and lending to small- and medium-sized enterprises,” explains Bailey.
He ordered lenders to be “ready for a prolonged period of credit stress” in a letter to bank chief executives. Bailey said: “The operating environment for firms remains challenging. The impact of increasing interest rates, inflation and high cost of living, geo-political uncertainty, and supply chain disruptions is expected to pose challenges to firms’ credit portfolios.”
Monthly repayments
The average buy-to-let two-year fixed-rate deal stood at 6% last month, according to the data company Moneyfacts, up from 2.89% a year earlier – adding around £389 to typical monthly repayments.
A growing number of those investing in property are women, according to data from HM Revenue and Customs which reports that they now make up 48% of the UK’s 2.7 million buy-to-let investors, up from 46% in 2016. The number of women who are residential property landlords has now reached 1.3 million, a 14% increase on the 1.1 million in 2016.
