Buy to let landlords in the UK are facing a tightening of the lending criteria for buy to let financial products.
The move follows an announcement by the Financial Conduct Authority (FCA) that the sector's standards are falling and may have an impact on the country's financial system.
The FCA is worried that many buy to let lenders are not currently supervised by the Prudential Regulation Authority (PRA), which is a branch of the Bank of England, so now the FCA says it is planning to tighten its scrutiny of buy to let mortgage borrowing.
The organisation has written to lenders about what they need to do and announced it is planning an intervention in the quickly growing private rental sector.
Poor lending criteria of buy to let mortgage products
The FCA says it's letter warns of poor lending criteria for buy to let mortgage products and of its fears over the integrity of the country's financial system.
The move follows a previous announcement by the PRA to tighten the affordability tests for buy to let borrowers including stress testing their ability to repay a mortgage with an interest rate of 5.5%.
The Bank of England says that the buy to let market could rise by 20% over the coming two years and is currently worth £200 billion.
The news of the FCA’s plans follows an announcement by the Council of Mortgage Lenders (CML) which says that the lending market for buy to let mortgages is still recovering.
Landlords received buy to let mortgages
The organisation has revealed that landlords received buy to let mortgages worth nearly £3 billion in June, that is a rise of 12% on the previous month.
Despite the rise, the value of buy to let loans is much lower than that recorded in June 2015.
In addition, since the higher rate of stamp duty was brought in last April, the amount of property being bought by landlords has dropped substantially; it has fallen by 15% year-on-year.
The CML's director general, Paul Smee, said: “Buy to let property purchasing is lower than before the stamp duty change but has shown a large month on month growth. As should be expected, buy to let remortgaging has not been affected by stamp duty changes and is consistent with last year's lenders.”
A spokesman for London estate agents Greene & Co said: “It's evident that private landlords are returning to the market and we have seen a big month on month growth with buy to let purchasing remaining lower than before the stamp duty changes were introduced in April.”