Mortgage works hits landlords with tighter criteria to obtain investment mortgages
With changes to tax relief next year on buy-to-let mortgages, Mortgage Works the buy-to-let arm of Nationwide building society had increased the lending criteria required by landlord by increasing rental cover requirements from 125 per cent to 145 per cent and cutting its maximum LTV from 80 per cent to 75 per cent from 11 May.
Nationwide has made a statement saying that they are making these changes as it believes landlords will struggle when the removal of tax relief is introduced from next year and phased in over the next 4 years.
The lender said: ‘These changes have been implemented in response to the forthcoming changes to landlord tax relief, which will start to be phased in from April 2017.
‘At present, mortgage interest is fully tax deductible, but from April 2020 tax relief on mortgage interest will be limited to 20 per cent. This means that higher tax rate payers will pay more tax as relief is reduced to the equivalent level of a basic rate tax payer.’
Paul Wootton, The Mortgage Works managing director, told Mortgage Strategy magazine: ‘As a responsible lender, this change is a pro-active move that recognises the need to help safeguard rental cover for landlords over the coming years, and in advance of the forthcoming changes to mortgage interest tax relief.
‘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.’
Mark Harris, chief executive of mortgage broker SPF Private Clients, says: ‘Some lenders have already increased rental stress rates in response to tax relief changes but not to this extent.
‘It is likely that other buy-to-let lenders will follow suit in a domino effect. It will make it much tougher for landlords to get the numbers to add up and careful consideration will need to be given before expanding portfolios or indeed investing for the first time.’