Banks to impose tough new buy-to-let tests

Banks are set to launch a new clampdown on buy-to-let in a bid to stop the boom getting out of control.

They are looking to crack down on the amounts landlords can borrow and will demand they pass stiff new lending tests.

This follows Chancellor George Osborne's recent crackdown on buy-to-let tax relief, which is expected to hit house price growth.

With interest rates set to rise shortly, amateur landlords could struggle to make their sums add up.

The buy-to-let sector escaped the stringent new lending rules introduced under the Mortgage Market Ratio (MMR) last year, and some say this has given borrowers an unfair advantage over residential mortgage applicants.

The clampdown will cut the amount landlords can borrow by thousands of pounds, forcing many to put up bigger deposits, according to a report in the Daily Mail.

Buy-to-let applicants will now face the same strict interviews and financial checks as residential borrowers, it said.

Mortgage broker Andrew Montlake, director of Coreco, said lenders are aware that politicians and regulators are watching the buy-to-let industry extremely carefully.

“Banks and building societies will likely put in place extra checks to make sure they are only handing out loans to investors who understand what they are doing.”

But David Hollingworth, of broker London & Country, suggested banks and building societies were tightening their lending criteria because low buy-to-let mortgage rates meant they were getting too much business.