Lenders mindful of the Chancellor’s tax measures, which will start to impact buy-to-let landlords from next year – April 2017 – are already starting to react.
TSB is the latest in a line of buy-to-let mortgage lenders to increase its rental cover to income calculation following on from concerns that landlords will come under pressure as a result of the tax changes.
The TSB rent cover ratio for buy-to-let mortgages has gone from 125% to 145%. For loan-to-values (LTV) up to 65% the rental cover calculation will be 145% or 5% of the pay rate, whichever is higher. Applications up from 65.01% to 75% LTV will be assessed on a calculation of 145% of 5.5% of the pay rate, whichever is higher.
With TSB the change will also apply to affordability calculations for a residential mortgage, when the customer already has buy-to–let mortgages. The rental income should cover 145% of the buy-to-let mortgage at the borrower’s pay rate.
Meanwhile, Santander is currently the only lender among the big banks holding its rent cover ratio at 125 per cent at 5 per cent. However, it is thought this lender will follow the trend at some stage in the near future, so there is still an opportunity to get some of these attractive buy-to-let rates.
Barclays moved to raise its rental cover ratio to 135 per cent on all new applications last year, saying it expected that “landlords may incur higher costs as a result of the tax change”. Paragon and Mortgage Trust have since made similar changes since.
It is not surprising that so many lenders feel cautious, and particularly now with the Brexit vote. Whether or not lenders believe the steps taken by the Chancellor on buy-to-let tax changes are necessary, they do know those changes will have an impact on landlords’ incomes, and so they feel the need to respond to that now.
Some experts feel that the measures being implemented by the Chancellor, which may yet be overtaken by events, will have far-reaching effects on the property market which have not been fully researched and understood or accounted for.
Paragon mortgages boss Nigel Terrington has suggested in a recent FT article that the Government was wrong to say that buy-to-let is “dangerous”, and that “better data” should be used before making any more policy changes.
Lenders increasing rates as rental costs increase https://t.co/WOnGRCC94d
— LandlordZONE (@LandlordZONE) July 5, 2016