The consultation paper includes an update to the section on buy-to-let lending, to help identify when a society should treat the lending as ‘commercial’ rather than ‘residential’ for underwriting purposes (it proposes a maximum of 3 properties before the loan should be treated as commercial in performing the underwriting assessment).
It also includes a new section on management of the risks involved in self-build lending and an extension of the section on equity release (including lifetime mortgages and home reversion plans) to highlight the "issues associated with hedging the complex risks associated with uncertainty over the expected maturity of the loan and its interaction with both interest rate risks and collateral valuation risks".
The new wording proposes that "only societies capable of operating on the Comprehensive approach for treasury management should consider carrying out lifetime mortgages at fixed interest rates, with interest roll-up".
The PRA has also proposed increases in suggested limits for lending at higher LTV without external insurance, new suggested limits for self-build loans that are in the construction phase, and reductions in suggested limits for lifetime mortgages.
The PRA said that the approaches have been "reviewed and amended to take account of current market trends, and particularly the increased level of customer demand for fixed rate loan products".
