The Mortgage Works tightens Buy to Let criteria

Word just in: Nationwide’s Buy to Let subsidiary has just announced two major changes to lending policy.

From Wednesday 11th May they will withdraw from 80% LTV lending completely. While this is still a relatively small sector the loss of such a major name will be keenly felt. 80% options are still available from a few lenders including Coventry BS, Mortgage Trust and Kent Reliance (who will lend to 85%).

They are also, more dramatically, increasing their required rental calculation.

Those notional rates are 4.99% up to 65% loan to value, and 5.49% above that. So a landlord with 35% equity currently needs enough rent to cover 125% of interest payments at an assumed rate of 4.99%.

From 11th May that will increase to 145% coverage, which may sound a bit abstract but in practical terms, a £125,000 loan will now need over £100 more rent each month to support it.

The Mortgage Works says this is an attempt to help landlords not over-extend with the increased tax burden due to start hitting next April (more on that here), but it’s also a fair bet that the Bank of England’s consultation paper on BTL underwriting standards – mainly, should they be tighter – fed into their thinking.

Whatever the cause these are very significant moves from one of the biggest BTL lenders in the market, limiting availability and reining in lending. We will watch with great interest to see whether others begin to follow suit.