The Prudential Regulation Authority published proposals on minimum standards for firms when underwriting buy-to-let contracts. The proposals would apply to all PRA-regulated firms undertaking buy-to-let lending that are not subject to regulation by the Financial Conduct Authority. The PRA is proposing that such firms be required to use an affordability test when assessing a buy-to-let mortgage contract as an interest coverage ratio test and/or an income affordability test. In addition, a standard set of variables would be established that would need to be shown in the tests. 

In addition, the PRA has proposed clarification on the application of the small and medium-sized enterprise supporting factor on buy-to-let mortgages which would apply to all firms subject to the Capital Requirements Regulation.  Under the CRR, the SME supporting factor is used to reduce the capital requirements on loans to SMEs on qualifying retail, corporate and real estate exposures. The PRA's view is that buy-to-let borrowing is not included in that reduction and the PRA expects firms to consider the purpose of a loan before applying the SME supporting factor. The consultation closes on June 29, 2016.

View the consultation paper.