Buy to let lenders are starting to tighten lending criteria after Bank of England governor Mark Carney warned mortgages should have an affordability cap.
Lloyds Banks and Royal Bank of Scotland (RBS) – the two main state-owned High Street banks – have both announced a loan to earnings ratio.
Lloyds, which includes leading buy to let mortgage brand BM Solutions, has imposed a four timers earnings lending condition on residential mortgages in London.
RBS, which also runs NatWest, has applied a 4.99 earnings cap on all buy to let loans through both banks.
Maximum loan-to-value will be set at 75% and no loans of more than £500,000 will be considered.
Both banks say the change is to protect customers from overreaching their finances and to bring buy to let in to line with residential mortgage affordability rules.
Regulator the Financial Conduct Authority recently issued guidance after Carney was given permission by the government to regulate mortgage borrowing more closely to avoid another property bubble.
However, he and the FCA made clear buy to let were not included in the warning to lenders although the Bank would ‘keep a close eye’ on the investment market.
The fear is some mortgage seekers are ‘gaming’ – which is obtaining a buy to let mortgage on their main home because they would otherwise fail affordability underwriting because they do not earn enough.
Meanwhile, Precise Mortgages has raised maximum age conditions from 75 to 85 years old on buy to let mortgages and agreed to accept pension income as a sole source of earnings.
Managing director Alan Cleary said: “These changes give us a retirement buy-to-let mortgage.
“This reflects the impact of pension reforms announced in the Budget and provides pensioners greater options when planning their retirement income.”
Nationwide’s buy to let subsidiary The Mortgage Works has already moved age barriers on buy to let mortgages.