Newcastle Intermediaries has made changes to its buy-to-let lending policy in advance of next year’s tax relief reforms.
Effective immediately, the buy-to-let rental coverage ratio has been increased to 145 per cent on a reference rate of 5.5 per cent, up from 125 per cent on a reference rate of 5 per cent.
This is all in response to the new landlord tax relief rules, which will start to be phased in from April 2017.
At present, mortgage interest is fully tax deductible, but from April 2020 tax relief on mortgage interest will be limited to 20 per cent, meaning higher tax rate payers will pay more tax, as relief is reduced to the equivalent level of a basic rate tax payer.
Steve Carruthers, head of mortgage distribution at Newcastle Intermediaries, said as a responsible lender, he was keen to ensure customers are well positioned to deal with these changes in advance.
Brokers have until 31 May to submit any applications previously agreed prior to this date under the old policy, while any applications currently being processed will continue to be assessed under the old policy.
Newcastle Intermediaries also stated the maximum number of investment buy-to-let properties that will lend on mortgaged properties has been reduced to three - from five - although this does not include mortgage-free buy-to-let properties.
Speaking last week at the Financial Services Expo in Manchester, Mortgages for Business’ managing director David Whittaker suggested when making a historical comparison, the maximum leverage available to borrowers was not being significantly impacted.
Commenting on TMW’s move from 125 to 145 per cent, he stated “this is not an Armageddon moment”, but did note first mover status in the marketplace to 145 per cent will serve the lender well for the next two to three years.
Mr Whittaker also extolled the benefits of moving existing properties, and making new purchases, through a limited company structure.
“The 125 per cent stress test for a limited company buy-to-let won’t change. However, when it comes to personal buy-to-let, there are already lenders making initial steps and fine-tuning including Woolwich, Paragon, BM Solutions and Kent Reliance.
“More will move prior to the CP11/16 [on buy-to-let mortgage underwriting] announcement in Q3 2016. I think it is a done deal rather than a consultation.”