Lender criteria hurts London’s BTL brigade

The managing director of London-based Springtide Capital said the main challenge for buy-to-let clients is that although house prices have risen, rental incomes have remained static, which is why it is increasingly difficult to get access to the right level of finance.

This problem has been exacerbated, he added, when Birmingham Midshires changed its policy from calculating the rental coverage based on the interest pay rate of the deal to a notional 5 per cent.

Mr Knight commended lenders such as Woolwich and Clydesdale as “belonging to just a handful of lenders who still calculate the payments based on the interest pay rate”.

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When asked why Birmingham Midshires had changed its policy, Phil Rickards, head of BM Solutions, said: “We have updated our BTL affordability criteria and although it remains at 125 per cent of rental income, it is now at the higher of either the initial pay rate or a notional rate which is currently 5 per cent.

“We believe that this is the right thing to do to ensure borrowers are in the best possible position to be able to manage future payments if their circumstances change.”

However, Mr Knight said that London’s buy-to-let investors usually opt for mortgage products with a high LTV because of the associated tax benefits. He said: “To keep up with this growing demand, we would like to see more lenders follow the example of banks like Clydesdale, Woolwich, and NatWest in offering a greater number of options to buy-to-let investors.”

The Council of Mortgage Lenders declined an invitation to respond to issues raised in this story.

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Duncan Carter, managing director of Preston-based Clearwater Financial Planning, said what was happening in London was also happening across the UK. He said: “As the property market has picked up, and most dramatically in London, so we have seen the lending rules for buy-to-let become more stringent.

“We can expect to see this trend continue as more people look to make a greater return on their money than they think might be achieved through other investment vehicles.”