The Leeds Building Society has become the latest buy-to-let mortgage lender to alter its criteria for borrowers, ahead of amendments planned for next year.
The changes come as a result of new guidelines forwarded by the Bank of England, giving them greater powers of mortgage lending.
Changes to stress tests
From the New Year, lenders are permitted to assess if their borrowers can repay loans, should interest rates rise by 5.5%. In turn, borrowers must give evidence that their rental income can cover 145% of the mortgage outgoings. This means that in effect landlords will be able to borrow less.
One final change is that lenders must also take into account a landlord’s overall tax position, when agreeing whether to agree a mortgage. At present, the Bank of England demand has yet to be finalised.
Leeds Building Society will insist on an income coverage ratio for buy-to-let and holiday let mortgages of 140%, not 125%.
Leeds Building Society brings in tighter lending criteria for borrowers
Richard Fearon, chief commercial officer at the society, noted: ‘We believe the combination of an income coverage ratio of 140 per cent, a specific and lower stress test rate for re-mortgages, our supporting criteria and market expertise brings a unique proposition to the buy to let market.’[1]
[1] https://www.lettingagenttoday.co.uk/breaking-news/2016/12/another-buy-to-let-lender-introduces-stiffer-criteria-for-investors