Under PRA affordability rules for a four-year fixed-rate business buy-to-let mortgage, which statement is true?

Under PRA affordability rules for a four-year fixed-rate business buy-to-let mortgage, which statement is true?

• A. must assess affordability using a minimum future interest rate of 5.5%
• B. cannot take rising rent into account when assessing affordability.
• C. must assess affordability assuming that interest rates will increase by 3%.
• D. does not need to complete an affordability assessment.

Answer: (A)

The key idea is that PRA affordability checks for buy-to-let loans require a stressed-rate test to see if the borrower could still afford payments if interest rates rise. For a four-year fixed-rate business BTL mortgage, the regulator sets a floor stress rate of 5.5% to be used in that affordability calculation. So lenders must assess whether the borrower can afford payments assuming the rate is at least 5.5%, regardless of the current product rate. That makes using a minimum future rate of 5.5% the correct approach. Affordability checks are still required, and rental income can be considered in the calculation, but the essential requirement is the 5.5% stress rate. The other statements don’t align with this rule.

The key idea is that PRA affordability checks for buy-to-let loans require a stressed-rate test to see if the borrower could still afford payments if interest rates rise. For a four-year fixed-rate business BTL mortgage, the regulator sets a floor stress rate of 5.5% to be used in that affordability calculation. So lenders must assess whether the borrower can afford payments assuming the rate is at least 5.5%, regardless of the current product rate. That makes using a minimum future rate of 5.5% the correct approach.

Affordability checks are still required, and rental income can be considered in the calculation, but the essential requirement is the 5.5% stress rate. The other statements don’t align with this rule.