City watchdog about to clamp down on buy to let lending, leaked letter suggests

A letter from the Financial Conduct Authority, leaked to Sky News, suggests that the body is drawing up plans to tighten scrutiny of buy to let mortgage lending. 

The FCA is believed to have sent copies of the letter to lenders for which it has regulatory responsibilities, confirming a warning - much predicted in recent months - that it would intervene in the buy to let sector. 

Sky says the letter is from Philip Salter, the FCA's director of retail lending. 

Extracts from the letter suggest the FCA is "considering to what extent poor BTL underwriting by firms solo-regulated by the FCA might compromise the advancement of our objectives - in particular our objective to protect and enhance the integrity of the UK financial system, as well as the potential for poor BTL lending to affect the fair treatment of customers with regulated products".

It also says "there is a risk that poor standards of lending could emerge in firms that would not be subject to the Prudential Regulation Authority's proposals" and repeats the FCA’s pledge to “actively monitor the non-bank lending sector of the BTL market to ascertain whether we need to intervene to advance our operational objectives."

In March the PRA - which regulates most banks - published a consultation paper outlining plans for new affordability tests for borrowers, including a minimum 'stressed' interest rate of at least 5.5 per cent.

One report suggests the leaked letter was sent to at least some lenders earlier in the summer.