Barclays Break Cover - New BTL Criteria Due to New Tax Regim

Barclays Break Cover - New BTL Criteria Due to New Tax Regim

Author
Discussion

Sarnie

Original Poster:

8,025 posts

208 months

Monday 30th November 2015
quotequote all
It seems that Barclay's have blinked first and altered their BTL assessment in light of the new tax regime......rental stress rate put up to 135% from 125%.......


"Given the changes to the Buy to Let (BTL) tax regime announced in the Summer Budget, there will be the potential for increased future costs for both new and existing BTL landlords. Barclays continues to have a desire to support the BTL market by best serving the aspiring landlord segment who may be looking for a long term investment.

As a responsible lender, Barclays wants to ensure that our aspiring landlord customers can afford the increase in tax liability once these changes come into force.

With this in mind, from Monday 7 December the minimum rental cover required for all new BTL applications will increase.

What is the change?

The rental cover ratio will increase from 125% to 135% for all new applications
There are no other changes to the affordability calculation. The current affordability rate is remaining at 5.79%
All existing background BTL and Permission to Let mortgages will also continue to be assessed at 125% as part of the overall affordability calculation
Existing Barclays BTL customers looking to Rate Switch will be unaffected by this change

Why are we making this change?

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 BTL in the long term
Barclays has already changed the affordability criteria to enable applicants to use personal disposable income (including bonuses) to make up any shortfall in our rental cover calculation


What is the action I need to take?

We recommend that clients seek advice from their accountant or tax adviser if they have any questions regarding their individual circumstances on this tax change"



Wonder who will be next??



Ozzie Osmond

21,189 posts

245 months

Monday 30th November 2015
quotequote all
Sarnie said:
The rental cover ratio will increase from 125% to 135% for all new applications
There are no other changes to the affordability calculation. The current affordability rate is remaining at 5.79%
All existing background BTL and Permission to Let mortgages will also continue to be assessed at 125% as part of the overall affordability calculation
If anyone would like to translate that into English I'd be interested to hear what it means. smile

Sarnie

Original Poster:

8,025 posts

208 months

Tuesday 1st December 2015
quotequote all
Ozzie Osmond said:
Sarnie said:
The rental cover ratio will increase from 125% to 135% for all new applications
There are no other changes to the affordability calculation. The current affordability rate is remaining at 5.79%
All existing background BTL and Permission to Let mortgages will also continue to be assessed at 125% as part of the overall affordability calculation
If anyone would like to translate that into English I'd be interested to hear what it means. smile
This is the salient part;

"The rental cover ratio will increase from 125% to 135% for all new applications"

Until yesterday, to borrow £100k via BTL mortgage from Barclays, you needed a minimum rental of £603.12pm (£100k x 5.79% / 12 x 125%).

Now, they will want £651.37 (£100k x 5.79% / 12 x 135%).

They think landlords costs are going to be increased now and have adjusted their affordability calculation accordingly.

In the above scenario, they would require the same client to be receiving nearly £50pm more than previously.

In the mortgage industry, when one of the big lenders makes a drastic change, the rest usually follow suit. If this spreads across lenders, they will all change as they scramble to not be left as the only lender offering 125% coverage.

Just thinking about the wider implications if this happens Eg will rents be increased to cover the higher rental requirements of lenders? Could this create "mortgage prisoners" Eg landlords with properties that can't be remortgaged if the market won't bear the higher rental requirements?

Only time will tell if this spreads across the industry or if this is just Barclays being risk averse and trying to reduce their BTL risk?

Mr Noble

6,535 posts

232 months

Tuesday 1st December 2015
quotequote all
One would have to assume that this will spread across the industry. These tax changes (40% mortgage interest) are a very real addition to the cost calculations that most BTLLs will have to factor in, along with the additional 3% stamp.

It's certainly all going to make a huge change to the desirability of BTL as an investment for the majority of small time LLs.

The point you (OP) make about this change creating mortgage prisoners is very interesting. I think what it might do is start to make people decide to pay down their existing BTL mortgages rather than saving up to acquire more BTL properties. Or, they'll decide to sell them, which, I suspect, is exactly what Mr Osbourne wants to happen.


Ozzie Osmond

21,189 posts

245 months

Tuesday 1st December 2015
quotequote all
Sarnie said:
useful stuff
Thanks, that's helpful. drink

Eric Mc

121,779 posts

264 months

Tuesday 1st December 2015
quotequote all
Yes - there was a bit of a virtual earthquake in the private landlord sector a couple of weeks ago. I think the reality of these changes is beginning to sink in.

Shaoxter

4,048 posts

123 months

Tuesday 1st December 2015
quotequote all
Sarnie said:
"The rental cover ratio will increase from 125% to 135% for all new applications"

Until yesterday, to borrow £100k via BTL mortgage from Barclays, you needed a minimum rental of £603.12pm (£100k x 5.79% / 12 x 125%).

Now, they will want £651.37 (£100k x 5.79% / 12 x 135%).
That sounds like a lot!
So your BTL would have to be yielding 5.9% assuming LTV of 75%...

Rude-boy

22,227 posts

232 months

Tuesday 1st December 2015
quotequote all
IMO this is nothing.

Anyone who has a BTL mortgage needs to read their T&Cs very carefully. Many have been sleep walking into huge potential problems as they think that they have a good old fashioned 'normal' mortgage. Oh no it isn't, it's commercial lending and a very different animal with much bigger, sharper and pointer teeth.

If there is a bit of a drop in prices and a rise in rates i can see some lenders starting to ask for paydowns to alter LTVs and remortgages becoming much harder to get at anything like sensible rates.


Behemoth

2,105 posts

130 months

Tuesday 1st December 2015
quotequote all
Rude-boy said:
If there is a bit of a drop in prices and a rise in rates i can see some lenders starting to ask for paydowns to alter LTVs and remortgages becoming much harder to get at anything like sensible rates.
Quite. The latest BoE stress test looks at a 20 & 35% drop and finds some lenders wanting. http://www.bankofengland.co.uk/financialstability/... I'd argue that 20 & 35% are rather more than "a bit of a drop" but your point is valid.

BlueNGT

701 posts

221 months

Tuesday 1st December 2015
quotequote all
Rude-boy said:
If there is a bit of a drop in prices and a rise in rates i can see some lenders starting to ask for paydowns to alter LTVs and remortgages becoming much harder to get at anything like sensible rates.
This has been happening for years. We have a had a few clients who had to restructure larger portfolios within the last few years.....disposal, lower LTV's, refinance away etc!!!


Brando

55 posts

197 months

Wednesday 2nd December 2015
quotequote all
Thanks for sharing, and converting for us lesser exp'd folk!

BoRED S2upid

19,643 posts

239 months

Wednesday 2nd December 2015
quotequote all
If your figures don't stack up at 135% You shouldn't be in BTL in the first place IMO.

Welshbeef

49,633 posts

197 months

Wednesday 2nd December 2015
quotequote all
What would be annoying just as in residential mortgages is if they refuse remortgage buy to let's if the 135% isn't met yet clearly they are already in and have fully afforded it from day one which could be one day or decades.


Seems that the Govt want to get rid of private enterprises and get it all into pension funds who have vast property ownership. Bit like council houses.....


Casa1862

1,062 posts

164 months

Thursday 3rd December 2015
quotequote all
Surly this has to push up rents, I was going to leave an increase this year but now will continue to move rents up so when I come to re mortgage I'm well clear of the 135%. With all the tax increases and potential tighter lending landlords don't have the luxury of sitting back and forgetting about it, once they get forced to review rents are only going one way.

e8_pack

1,384 posts

180 months

Friday 4th December 2015
quotequote all
Casa1862 said:
Surly this has to push up rents, I was going to leave an increase this year but now will continue to move rents up so when I come to re mortgage I'm well clear of the 135%. With all the tax increases and potential tighter lending landlords don't have the luxury of sitting back and forgetting about it, once they get forced to review rents are only going one way.
Which will make ownership much more attractive and affordable. I think highly leveraged landlords will become priced out, many are so close to the edge that a house unlet for a few months will tip them over.

Welshbeef

49,633 posts

197 months

Friday 4th December 2015
quotequote all
e8_pack said:
Which will make ownership much more attractive and affordable. I think highly leveraged landlords will become priced out, many are so close to the edge that a house unlet for a few months will tip them over.
You say that yet house prices are predicted to raise on average of 6.6% in 2916. Let's say average house is what £280k so they will gain £18.5k in capital appreciation plenty to cover a month or so empty in fact that's probably 50% higher than the UK average rent of £1k pcm.


Not sure how it will push anyone over the edge

NorthDave

2,355 posts

231 months

Friday 4th December 2015
quotequote all
Welshbeef said:
You say that yet house prices are predicted to raise on average of 6.6% in 2916. Let's say average house is what £280k so they will gain £18.5k in capital appreciation plenty to cover a month or so empty in fact that's probably 50% higher than the UK average rent of £1k pcm.


Not sure how it will push anyone over the edge
You can't pay your mortgage with Capital appreciation though!

Sarnie

Original Poster:

8,025 posts

208 months

Saturday 7th May 2016
quotequote all
Back to this topic and BTL's..............TMW are changing their rental coverage too......from 125% up to 145%!

Max LTV is being reduced from 80% to 75% LTV too.............times are changing it would seem....

Casa1862

1,062 posts

164 months

Saturday 7th May 2016
quotequote all
Sarnie said:
Back to this topic and BTL's..............TMW are changing their rental coverage too......from 125% up to 145%!

Max LTV is being reduced from 80% to 75% LTV too.............times are changing it would seem....
Surprised telegraph reporting this today, same old new from last week.

http://www.telegraph.co.uk/personal-banking/mortga...




Sarnie

Original Poster:

8,025 posts

208 months

Saturday 7th May 2016
quotequote all
Yep.............rumours of Natwest moving to 135% too.......