Nationwide’s buy-to-let arm has cut the interest cover ratio (ICR) to 125 per cent for mortgage applications from lower-rate taxpayers.
The move is aimed at helping borrowers who were unaffected by the tax-relief changes introduced by the government earlier this year.
In May 2016, TMW raised its interest cover ratio to 145 per cent to protect landlords ahead of the changes, which will saddle higher and additional rate tax payers with more tax as relief is reduced to the equivalent level of a basic rate tax payer.
But the lender stated it has now developed the capability to separate out the interest cover ratio for higher and lower-rate taxpayers.
To qualify for the 125 per cent interest cover ratio, borrowers must be able to provide income proofs to support their lower rate tax status and have a maximum portfolio size upon completion of three properties.
Paul Wootton, managing director of specialist lending at TMW, said: “We are taking steps to make sure that those buy-to-let borrowers who are paying tax at the lower rate see that reflected with appropriate measures of affordability.
“TMW, as part of Nationwide, already robustly assesses the affordability of its buy-to-let mortgages against stress rates that are higher than the borrower’s existing rate, and wanted to take a more flexible approach for those borrowers unaffected by the incoming tax relief changes.
“As a result, we are reducing the interest cover ratio to 125 per cent for new applicants who are not subject to the tax relief changes, which will enable them to borrow affordably while recognising the need to help safeguard rental cover for all landlords over the coming years.”
Liz Syms, chief executive at Greater London-based Connect Mortgages, welcomed the move but added many other lenders already make the distinction between higher and lower-rate taxpayers.
She said: “It is great that they are doing it because they are a big lender, but they are catching up in the market with lenders that had already set the rates.”
simon.allin@ft.com
