Mortgage lenders in Britain are widely expected to limit lending to buy-to-let borrowers, after a decision from the Mortgage Works that moved to restrict the amount landlords can borrow.
The Mortgage Works, a buy-to-let division of Nationwide, said last week that from 11th May, residential landlords will require to have substantially more rental income relative to the cost of their mortgage than is presently the case.
The division has tightened its rental cover requirement, which is the amount a landlord is required to take in rent in comparison to the cost of their mortgage repayments. This figure has now risen to 145%, from 125% previously.
This alteration means that Nationwide will not lend to landlords with a 20% deposit and instead will only lend to those with a minimum 25%. The changes come in response to the Bank of England’s announcement in March that mortgage lenders could face stricter lending criteria when offering mortgages to buy-to-let landlords.
Experts have forecast that property investors will need to have a 40% deposit when looking to purchase property, as a result of the alterations.
Buy-to-let lenders facing stricter criteria
David Whittaker, managing director at broker Mortgages for Business, noted that he was not surprised to see lenders starting to increase cover ratios for borrowers. He said, ‘as one of the biggest mainstream buy-to-let providers, The Mortgage Works is taking the lead and demonstrating to the market and the regulators that it truly understands the forthcoming tax relief changes. It will be interesting to see how other providers react.’
‘I anticipate a few will be making similar preparation, some will wait until the outcomes of CP11/16 (Recovery and Resolution Plans) are known and others will bury their heads in the sand. ICRs on products for limited companies will remain generally the same as they are now because these borrowing vehicles will not be subject to the new tax relief restrictions. Indeed, it will be the lenders with products in this category who will be the likely winners out of this in the long term,’ Whittaker continued.