Mortgage Criteria Tightened for Buy-to-Let Investors

Mortgage Criteria to be tightened by leading UK Financial Institutions.

The Buy-to-Let market is to face another problem, as national mortgage lenders announce that they will be reducing the provision of credit for lending. Nationwide Building Society, one of the biggest national lenders which provides 1 in 7 loans to landlords, has announced that it is changing its rental calculations within mortgage criteria to be stringent and also reducing the loan-to-value for landlords.

The rental cover requirements are to increase from 125 to 145%. Prior to this change, a customer receiving £10,000 in rent per annum could borrow a maximum loan amount of around £160,000. Soon, however, the maximum loan will be reduced by £22,000 to £138,000.

Paul Wootton, managing director of The Mortgage Works (TMW) – the specialist Buy-to-Let arm of Nationwide – stated that:

“TMW, as part of Nationwide, already robustly assesses the affordability of its buy-to-let mortgages against stress rates that are considerably higher than the borrower’s existing rate. The increase in the rental cover requirement is designed to strengthen this cashflow position even further, and help them withstand the impact of increased costs from the new tax regime.”

With increasing costs in the future, particularly with the loss of mortgage capital gains relief, the lenders acknowledge that it may be becoming more difficult for Buy-to-Let to maintain its current levels of profitability.

However, not all is doom and gloom. Although the criteria to receive mortgages has become more strict, the actual rates of borrowing have been decreasing. Recent data from finance website Moneyfacts shows that the average rate on a two-year fixed rate buy-to-let mortgage has fallen from 5.21% in 2011 to 3.32 % now. Indeed, early figures during 2016 have shown that the number of loans granted to landlords increased 22% in January. This may have been a temporary surge in lending to beat the stamp-duty surcharge, as lenders now believe that the market activity will drop through the coming year.

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