Bank of England orders lenders to be ‘ready for a prolonged period of credit stress’

Bank of England orders lenders to be ‘ready for a prolonged period of credit stress’

18:09 PM, 11th January 2023, About 8 months ago

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The executive director of the Bank of England financial watchdog, David Bailey, has warned that the Bank of England intends to increase scrutiny on lending to landlords.

Mr Bailey said: “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.”

Tougher criteria checks on lending to landlords could cause a significant lack of competition amongst lenders when renewing their current deals.

As a result, borrowers should be prepared for rates to exceed the market average if these tougher checks force them to remain with their existing lenders.

With the average Buy-to-Let two-year fixed-rate deal standing at 6% in December, up from just 2.89% a year earlier, and close to £1 trillion currently borrowed by landlords, the recent increases in borrowing costs and the effects of Section 24 raise the risk that landlords will own a business which will be losing money over a sustained period of time.

This could have horrifying results as many landlords will either choose to sell up… or in a worst-case scenario, hand the keys back to the lender.

Solution for private landlords

However, there is one option which many private landlords could utilise to deduct their mortgage interest payments from their income, which section 24 has stopped. This will improve private landlords’ financial position and navigate the forecasted period of ‘credit stress’ more comfortably.

Property118 and Cotswold Barristers can assist clients with incorporating privately owned property businesses into a company structure, whilst retaining their existing mortgages and also receiving relief from both Capital Gains Tax and Stamp Duty Land Tax.

With the net tightening at an alarming rate, we advise any private landlord to Click Here and schedule a consultation with Property118 today.

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