MortgagesAug 19 2015

Buy-to-let lenders reveal why criteria is tightening

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Buy-to-let lenders reveal why criteria is tightening

Lenders are gradually updating their buy-to-let affordability calculations following the changes announced in the summer Budget, however there have not been any “dramatic moves”, industry experts said.

As it currently stands, most lenders require the rental income to be at least 125 per cent of mortgage payments, based on an interest rate of between 5 per cent and 6 per cent.

However John Charcol’s senior technical manager Ray Boulger previously warned that the changes will force lenders to reassess their calculations.

According to Mr Boulger Clydesdale has increased its maximum loan at 70 per cent loan-to-value to £1m, the Mortgage Works increasing its maximum loan to £750,000 at 70 per cent LTV and £500,000 at 75 per cent LTV, and Keystone increasing its maximum loan to £500,000 at 80 per cent LTV and £750,000 at 75 per cent LTV.

The Woolwich has brought in a more holistic affordability check at the end of July, to assess how affordable the landlord’s overall position is – including their residential mortgage – rather than focussing on a single buy-to-let in isolation.

All new applicants will be stressed against Woolwich’s current rental cover calculation of 125 per cent at the current stress rate of 5.79 per cent.

A Barclays spokesman added that they changed lending criteria to include a personal affordability check for all applications.

“This not only enables us to be confident as a lender that we are lending responsibly, but also allows prospective buy-to-let customers to use personal income to cover any shortfalls where our 125 per cent rental cover calculation is not met.”

Meanwhile, TSB Intermediary introduced a minimum income of £25,000 a year for buy-to-let applications, with self-employed applicants needing to have been trading for a minimum of one year.

Also at the end of July, Accord Mortgages increased their rental coverage from 125 per cent at 5 per cent to 125 per cent at 5.24 per cent and just last week, Leeds Building Society increased its minimum income requirement to £25,000 from £20,000.

A spokesperson for Accord owner Yorkshire Building Society said: “The increase in our BTL rental calculation ensures we maintain robust affordability criteria, taking into consideration potential for mortgage interest rate increases in the future.”

Back in May, Natwest increased their rental calculation from 125 per cent at 5.25 per cent to 125 per cent at 5.50 per cent, while in July its intermediary arm said it would now consider buy-to-let mortgage applications where a ‘selective licensing scheme’ is in place where the property is situated.

Peter Gettins, product manager at London and Country Mortgages, said that so far there have been no “dramatic” moves, but clearly the tax change meant landlords will see a drop in income, so it is “not surprising” lenders want to change their criteria.

“As much as anything they may simply feel that, if halving the tax break is the difference between viability and not, that’s a bit too marginal for comfort and would like to see something a bit more robust.

“Of course there’s a danger in hanging too much on the tax changes, they’re being stepped in quite gently over the next few years so you wouldn’t necessarily expect a major reaction immediately.”

He added that there’s also the wider context of the Bank of England already signalling some concern that buy-to-let may overheat and disrupt the market, so lenders will be reviewing their comfort level over the coming months.

“I wouldn’t be at all surprised to see a few more lenders tweaking policy by the end of the year.”

Vic Jannels, group executive chairman of All Types of Mortgages, told FTAdviser that it has not seen much in the market in terms of buy-to-let criteria changes since the Budget.

“For lenders there really hasn’t been anything definite, no immediate impact.”

The Nottingham Building Society, Skipton Building Society and Metro Bank both stated that they have not changed lending criteria since the summer Budget and have are no plans to do so, with the latter stating it already offers a number of different propositions to both private individuals and limited companies.

A spokeswoman for Nationwide Building Society added: “We have not made any criteria changes off the back of the Budget announcement, nor do we have any immediate plans to do so.

“We regularly review our policies, ensuring they are fit for purpose in light of changing market conditions.”

peter.walker@ft.com