The head of Lloyds’s BM Solutions has said he is sceptical of what he calls the “broad brush approach” of some lenders seeking 145 per cent rental coverage for buy-to-let (BTL) loans.
A growing number of buy-to-let lenders are demanding rental coverage of 145 per cent because of former chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest to the basic rate.
Some have predicted that as much as two-thirds of the buy-to-let market has moved to 145 per cent but Mr Rickards said it could be closer to one third.
He said: “We are definitely monitoring where things are going but moving to 145 per cent is just one solution, which we think is a bit of a broad brush approach.
“We are considering all options which can take time, effort and investment. We definitely have to address the change in tax regime and want to provide the protection that the borrowers and lenders need.
“The concerns about standard rate taxpayers is why I am not sure that the broad brush approach is sensible. The sort of thing we are looking at will help us to differentiate between higher rate and top rate taxpayers.”
As more lenders move to 145 per cent, it has raised the prospect of some borrowers becoming mortgage prisoners because they cannot remortgage.
Among some of the country’s biggest lenders, Nationwide’s The Mortgage Works has moved to 145 per cent while RBS said it is reviewing its position and Coventry has moved to 140 per cent.
Mr Rickards said the changes associated with the tax relief reforms had the potential to make life harder for mortgage advisers.
He said: “This is going to make the job of a mortgage adviser much more difficult.
“What we are saying to mortgage advisers is that if you have got any doubt about the client’s particular tax position then then they must seek tax advice because mortgage advisers are not tax specialists.”
