Barclays is the first major mortgage provider to tighten its criteria for buy-to-let lending.
Barclays is First Major Lender to Tighten Buy-to-Let Criteria
The bank announced that from 7th December, its rental cover ratio will rise from 125% to 135% for all new applications. This decision was made after the summer Budget revealed that buy-to-let mortgage interest tax relief will be cut from 2017. Landlords are expected to incur higher costs as a result.
It is believed that Barclays’ change in criteria could spread out into the market, with other lenders adopting the same rules.
From Monday, all new buy-to-let applicants must prove that they can cover the mortgage payments by 135% of rent.
All existing buy-to-let and permission-to-let mortgages will continue to be assessed at 125% as part of the overall affordability calculation and the affordability rate will stay at 5.79%.
In July, Chancellor George Osborne announced that tax relief for landlords will be gradually reduced to the basic rate from April 2017.
In a statement from Barclays to intermediaries, the bank said that the increase in rental cover ratio will ensure new customers are protected in the long-term.
Chief Executive of mortgage broker SPF Private Clients, Mark Harris, believes the bank is likely to be the first of many lenders to make this change to their buy-to-let criteria.
He adds that the industry is coming to a point where buy-to-let will become a 50% loan-to-value (LTV) product in the South East and London at least, putting a small-scale investor into the same category as a large landlord.
He says: “This means that if you are going to invest in property, you won’t be leveraged at 85% LTV, for example, which was commonplace during the boom, but will need to find a lot more equity.”
He also states that when investors are hit by the higher rates of Stamp Duty from April, smaller landlords will be dropped in favour of wealthier investors. Find out more about the changes in Stamp Duty here: /btl-homes-hit-with-increased-stamp-duty/
“These developments are not good news for tenants, as landlords will inevitably push up rents if they can to cover some of their higher costs and removal of some tax breaks,”1 Harris concludes.
The Bank of England has also announced that it is ready to cool the buy-to-let market. Read more: /bank-of-england-stress-tests-results-revealed/