Buy-to-let lenders reveal why criteria is tightening
08-20-2015
By Peter Walker
Lenders are gradually updating their buy-to-let affordability calculations following the changes announced in the summer Budget, however there have not been any “dramatic moves”, industry experts said.
As it currently stands, most lenders require the rental income to be at least 125 per cent of mortgage payments, based on an interest rate of between 5 per cent and 6 per cent.
However John Charcol’s senior technical manager Ray Boulger previously warned that the changes will force lenders to reassess their calculations.
According to Mr Boulger Clydesdale has increased its maximum loan at 70 per cent loan-to-value to £1m, the Mortgage Works increasing its maximum loan to £750,000 at 70 per cent LTV and £500,000 at 75 per cent LTV, and Keystone increasing its maximum loan to £500,000 at 80 per cent LTV and £750,000 at 75 per cent LTV.
The Woolwich has brought in a more holistic affordability check at the end of July, to assess how affordable the landlord’s overall position is – including their residential mortgage – rather than focussing on a single buy-to-let in isolation.
All new applicants will be stressed against Woolwich’s current rental cover calculation of 125 per cent at the current stress rate of 5.79 per cent.
A Barclays spokesman added that they changed lending criteria to include a personal affordability check for all applications.
“This not only enables us to be confident as a lender that we are lending responsibly, but also allows prospective buy-to-let customers to use personal income to cover any shortfalls where our 125 per cent rental cover calculation is not met.”
Meanwhile, TSB Intermediary introduced a minimum income of £25,000 a year for buy-to-let applications, with self-employed applicants needing to have been trading for a minimum of one year.
Also at the end of July, Accord Mortgages increased their rental coverage from 125 per cent at 5 per cent to 125 per cent at 5.24 per cent and just last week, Leeds Building Society increased its minimum income requirement to £25,000 from £20,000.
A spokesperson for Accord owner Yorkshire Building Society said: “The increase in our BTL rental calculation ensures we maintain robust affordability criteria, taking into consideration potential for mortgage interest rate increases in the future.”
Back in May, Natwest increased their rental calculation from 125 per cent at 5.25 per cent to 125 per cent at 5.50 per cent, while in July its intermediary arm said it would now consider buy-to-let mortgage applications where a ‘selective licensing scheme’ is in place where the property is situated.
Peter Gettins, product manager at London and Country Mortgages, said that so far there have been no “dramatic” moves, but clearly the tax change meant landlords will see a drop in income, so it is “not surprising” lenders want to change their criteria.