Barclays Bank is set to increase its minimum rental coverage on Buy-to-Let mortgages, in the wake of George Osborne’s Autumn Statement.
Following the news last week that BTL purchases would attract an additional 3% of Stamp Duty across the board, Woolwich, the mortgage lending arm of Barclays, has increased its minimum coverage from 125% to 135%, in one of the biggest changes to BTL mortgage criteria in recent years.
“All lenders have a rate at which rent must cover the mortgage, typically at a nominal interest rate of around 5%” said Simon Butler, Associate Director at Contractor Mortgages Made Easy.
“Until now, all had demanded that rent must cover mortgage payments at this rate up to 125% of the payment. That meant that, if interest payments on the nominal rate were £100pm, rent would need to be £125pm to be ‘affordable’.”
“With Woolwich hiking this comfort level up to 135%, and considering that their nominal rate for affordability is 5.79%, one of the highest in the market; they are effectively saying they do not want Buy-to-Let business, as this means that far more applications will now fall outside of affordability.”
The change comes into effect on 7th December, with all cases submitted after this date needing to meet the new 135% coverage. All existing rental properties will, however, continue to be assessed at 125%.
In a letter to brokers, Barclays said “it is expected that landlords may incur higher costs as a result of the tax change and therefore we are amending our affordability calculation to reflect this”.
“The increase in the rental cover ratio will ensure we protect our new customers as they look to invest in buy-to-let in the long term.”
Barclays stance could, says Butler, prompt other lenders to take a similar stance.
“The worry that many of our clients have is that this could prompt other lenders to do the same. After all, Barclays are no backstreet lender.”
“As an unregulated part of the market, Buy-to-Let mortgages are seen in some quarters as an easy target, so it would be no surprise if further changes were implemented by the Chancellor in March’s budget announcement. This could worry lenders into taking preventative measures sooner rather than later.”
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