Britain’s second largest buy to let lender has capped lending to landlords.
The Mortgage Works, the buy to let brand of building society The Nationwide, has effectively barred many landlords from borrowing by changing the way rent cover is calculated.
Rent cover is a comparison between rental income and mortgage interest. The ratio tests mortgage affordability.
Most lenders set the bar at 125% rent cover – but TMW has set the new limit at 145%.
The rent cover is compared to mortgage interest repayments at 5.49% for advances between 65% and 75% loan to value, while buy to let deals for less than 65% loan to value are calculated against a mortgage rate of 4.99%.
TMW has also stopped lending at more than 75% loan to value.
The changes take effect from May 11, 2016.
The move hits landlords remortgaging as well as those buying new rental property.
For landlords already with TMW, the rate will not apply to remortgages providing no additional funding is required.
TMW explained the rise in rent cover follows a consultation by the Bank of England that demands buy to let lenders have to consider non-mortgage costs such as tax and letting agent fees when considering if a landlord can afford loan repayments.
“This change is a proactive 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,” said a spokesman.
The largest buy to let lender, Lloyds Bank. Has already announced a reduction in funds available for landlords.
Meanwhile, Accord Buy to Let has cut the minimum value of properties to lend against from £100,000 to £75,000 and will allow borrowing on former local authority properties.