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UK PRA outlines underwriting standards for buy-to-let market

The Bank ofEngland's Prudential Regulation Authority published itsexpectations of minimum standards that firms should meet when underwritingbuy-to-let mortgage contracts.

The PRA said firms should assess a potential borrower's taxliabilities and other mortgage-related costs, personal income and potentialinterest rate moves. It would also allow lenders to assume reasonable rentalincreases when assessing a mortgage application. Lending to landlords holdingfour or more mortgaged for properties that are being rented out should beassessed using a specialist underwriting process, the regulator said.

Furthermore, the watchdog said the Capital RequirementsRegulation, which decreases the capital requirements on loans to small andmedium-sized enterprises by around 25%, should not be applied if the loan isbeing taken out to support buy-to-let business.

The PRA will implement some of these changes Jan. 1, 2017,and the remainder Sept. 30, 2017.

The PRA will consider a thematic review in early 2018 toassess the implementation of its guidelines.