Coventry has launched a tiered interest cover ratio (ICR) for buy-to-let landlords based on applicants’ gross annual income and tax status.
From now, the ICR will be 125 per cent if each applicant’s total gross annual income is less than £40,000 and all applicants are non-taxpayers or basic rate taxpayers.
If any individual applicant’s total gross annual income is £40,000 or more, or if any applicant is a higher rate or additional rate tax payer, the ICR is 140 per cent.
The building society has also removed its requirements for minimum income, which were previously £25,000 or £30,000 for joint applications, and minimum time in employment, which was previously 12 months.
Several lenders have now introduced tiered ICRs in advance of tougher affordability checks for buy-to-let mortgages due to be introduced in full by 30 September.
Kevin Purvey, director of intermediaries, said: “As the buy-to-let market becomes more complex, we’ve been looking for ways to keep our offering as simple and straightforward as possible.
“We’ve listened to and worked with intermediaries, and we think that a tiered ICR calculation – as part of our overall assessment – is the best way to adapt to the changing market.
“These clear and transparent changes will allow us to offer our buy-to-let products and award-winning service proposition to a wider group of landlords.”
Oliver Marley, mortgage adviser and head of research at London-based Independent James, commented: “I can see that Coventry are continuing to innovate and think outside the box with this bespoke piece of criteria.
“With new Prudential Regulation Authority changes coming into effect, many lower-income households have been penalised by lenders despite being no worse off from a tax perspective, and we’ve been waiting for the mainstream banks to introduce a more ‘individual’ level of underwriting.
“Coventry have always been able to uphold their reputation as a more attentive building society and this is again confirmed with this latest update.”
simon.allin@ft.com
