Santander has altered its buy-to-let affordability arrangements to help borrowers who have been hit by the Prudential Regulation Authority’s new guidelines.
From 19 April, the lender will assess eligible BTL remortgage applications where no increase in borrowing is taking place using a minimum of 125 per cent rental cover at a 5 per cent affordability rate.
The move is designed to prevent borrowers who already had a BTL mortgage before the new PRA guidelines were rolled out on 1 January from being adversely affected when remortgaging.
Eligible customers must have purchased their property before 1 January 2017, the remortgage must not lead to an increase in borrowing (adding product fees is allowed), and no additional lending must have been taken on or after the 1 January 2017.
Brad Fordham, managing director, Santander for Intermediaries, said: “Some existing BTL customers may be adversely affected following the new borrowing guidelines which were introduced across the industry earlier this year.
“Borrowers who have previously demonstrated they can meet affordability requirements may now find themselves restricted when it comes to remortgaging away from their existing lender.
“Through the introduction of these transitional arrangements, we hope to better support our BTL customers, helping them to secure the best product to meet their needs when they come to renegotiate their product.”
Increasing numbers of lenders are demanding coverage of 145 per cent, up from the 125 per cent many used to ask for.
This move by lenders has reportedly been prompted by 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, which came into effect this month.
Meanwhile the PRA has introduced a minimum affordability stress test rate for buy-to-let borrowers - the outside amount they would need to be able to pay - of 5.5 per cent for the first five years of the mortgage following concerns about lenders’ growth plans, and the fact they might relax their underwriting standards to meet them.
But this has prompted concerns that buy-to-let borrowers could become mortgage prisoners as they attempt to refinance deals they entered into before the tough new rules were introduced, with mortgage brokers potentially being accused of mis-selling.
Ray Boulger, senior technical manager at London-based John Charcol, said: “It is very interesting that Santander have decided to apply these rules. In general, in the residential market the larger lenders have not used the flexibility – it is mainly the smaller lenders.
“It is good in terms of giving borrowers an extra remortgage option, and once we get one lender doing something it tends to have the effect of making other lenders consider their positions and follow suit.
“As it has been done by Santander, I would not be at all surprised to see others follow suit.”
simon.allin@ft.com
