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

[Sarnie]

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??

[Sarnie]

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.

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?

[Sarnie]

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....

[Sarnie]

Yep.............rumours of Natwest moving to 135% too.......

[Sarnie]

Casa1862 said:

Aren't Natwest already 125% at 7% already, if they go 135% at 7% can't see then getting much business, perhaps that's the points, rates seem to be not very either.

No, never been 7%...........

[Sarnie]

Casa1862 said:

http://intermediary.natwest.com/downloads/natwest/...


http://intermediary.natwest.com/downloads/natwest/...

"Rental cover - up to four loans

We use a rental cover percentage to work out how much your client can borrow.
All rental cover percentages are based on an interest rate of 125% at 5.5%."

http://intermediary.natwest.com/home-options.asp?p...

[Sarnie]

MrChips said:

Hmm, this might actually cause me some issues!

You won't be the only one, people just don't realise it yet............

[Sarnie]

Casa1862 said:

If your existing lender allows you to do a product switch I assume it won't affect you, it's only if you remortgage or new purchase. I've choosen a lender this time which allows a product switch, not all do like platform home loans I'm with for one of mine. Coventry building society and virgin allow btl product switch.

It will affect you if your current lender allows product transfers but changes their assessment criteria.

I have a client who bought two flats with TMW at 80% LTV. TMW have just withdrawn lending at 80% and increased the rental coverage to 145%.......hisrental and lTV no longer fit lending criteria. He doesn't have any other option other than reducing the balances accordingly or reverting to the SVR........

[Sarnie]

Mr Noble said:

TMW are going to force him off his current deal or will this only happen at the end of an agreed fixed/tracker term? Presumably you can just sit on an SVR until you either sell the house or find enough cash to reduce the amount you need to borrow?

They can't force him off his current deal, it's just that his current rate reverts from the current 2.99% to their SVR of 4.99% at the end of June and they have no 80% LTV products for him to transfer to......his choices are to reduce the balance and transfer to a new product with TMW or elsewhere, or stick with it and revert to the 4.99% SVR.......

[Sarnie]

Casa1862 said:

I agree in this case that the lender no longer does 80% LTV, however a lot have borrowed at 75% LTV or less, those people would be OK? I thought the whole point of a product swap is that a new application does not need to be done, my understanding is that as long as you take "no advice"and ask for "execution only" the process requires very little checking, I've always done it on line or by phone, process took 10 minutes.

What you've always done in the past won't apply to what you need to do in the future if the lender moves their goalposts like TMW....

With regards to this;

"I agree in this case that the lender no longer does 80% LTV, however a lot have borrowed at 75% LTV or less, those people would be OK"

They may be ok on LTV but if the rental is not meeting the new 145% stress rate then there will be issues that ultimately will mean balance reductions until the lending fits the new stress rate......

[Sarnie]

Sarnie said:

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%.......

Seems Barclays are taking this further...........rental coverage upped again from 1355 to 145%....

"From 26 May we are making an adjustment to the minimum rental cover required for all new BTL applications from 135% to 145%.

We will continue to carry out a full income and expenditure assessment where clients can continue to use personal disposable income (including bonuses) to make up any shortfall in rental cover.

These changes are being introduced as a result of the reduction in landlord tax relief available from next April (phased in over four tax years). As a responsible lender we want to ensure that your clients can afford their repayments plus, other costs associated with the property where the borrower is responsible for payment such as, council tax and management / letting fees."

Edited by Sarnie on Thursday 19th May 11:35

[Sarnie]

Seems the market is reacting now, goal posts are being moved........Newcastle BS this morning;

"Following a review of the market, we can confirm some changes to our Buy to Let Mortgage Lending Policy.

The key changes take effect immediately and are described briefly below, and in the lending criteria section of our website.
• Buy to Let – Rental Coverage Ratio
This has now been increased to 145% on a reference rate of 5.5%. Previously this was 125% on a reference rate of 5%.

• Buy to Let – Maximum number of investment properties
This has now been reduced from 5 to 3. For the avoidance of doubt this figure only includes mortgaged BTL properties, those that are held as mortgage free would not be included."