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Leeds shakes up buy-to-let lending criteria

Leeds shakes up buy-to-let lending criteria

Leeds Building Society has announced new criteria following the Prudential Regulation Authority's changes to underwriting standards for buy-to-let mortgages.

Chief commercial officer at the firm, Richard Fearon, has described Leeds Building Society's criteria as bringing a "unique proposition" to the buy-to-let market.

Changes come into effect on 1 January 2017, and are designed to support the buy-to-let area.

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Income coverage ratio for buy-to-let and holiday let mortgages will go up to 140 per cent, from 125 per cent.

Interest coverage ratio will be assessed taking into account mortgage interest tax relief.

The affordability stress test rate is 5.5 per cent for purchase and capital raising remortgages. The affordability stress test rate where there is no additional borrowing is 5 per cent.

An income coverage ratio assessment is not required for existing Leeds Building Society buy-to-let customers who have come to the end of their existing deal and there is no additional borrowing.

The minimum income requirement has been removed - previously it was £25,000 a year or £40,000 for joint applicants, and it is available at up to 70 per cent loan-to-value.

Richard Fearon, chief commercial officer of Leeds Building Society, said: “We believe the combination of an income coverage ratio of 140 per cent, a specific and lower stress test rate for re-mortgages, our supporting criteria and market expertise brings a unique proposition to the buy-to-let market.

"Around 60 per cent of buy-to-let advances are remortgages and our affordability stress test rate where there is no additional borrowing is 5 per cent, which will support a significant number of landlords with existing properties looking to refinance their portfolio."  

Daniel Bailey, principal at north England-based Middleton Finance said he has a lot of clients who have buy to let mortgage deals coming to an end in the next six months and will be looking to remortgage.

He said: "It is welcome news that Leeds are offering a number of affordability stress test options, particularly for landlords looking to remortgage without any capital raising.

"2017 is going to be a challenging year for landlords looking to refinance and increase there portfolio. We could see a lot of landlords struggling to refinance and being stuck on a lenders standard variable rate."

ruth.gillbe@ft.com