Santander tightens buy-to-let lending policy

Santander has announced it will tighten the rental calculation for landlords from 23rd November. This makes them the first major lender to declare policy changes since the Prudential Regulatory Authority published new requirements in September.

The new rules state that from January lenders must operate a “stress rate” of at least 5.50%, unless the scheme rate is fixed for 5 years or more. In calculating the amount of coverage required, they must also take account of changes to tax liabilities and the costs of managing the property.

Currently Santander’s policy requires 125% coverage at a stress rate of 5.00% up to 60% Loan to Value, or 5.50% above that.

Their response to the new regulations is to increase that to 145% coverage at a stress rate of 5.50% for all borrowers, even those taking a 5-year fixed rate.

What does this mean in practical terms?

Under the current policy a property bringing in £1,000 per month in rent would support a mortgage of up to £192,000 if the loan were less than 60% of the property value.

In future that £1,000 rent will only support a loan of £150,470.

Put another way, a landlord with £150,000 loan currently needs rent of £781 per month to support the mortgage, but in future will need £997 rent per month.

We estimate there are around 25 lenders who have a stress rate less than 5.50% for at least some borrower groups, including some of the biggest buy-to-let lenders like BM Solutions (part of Lloyds group) and The Mortgage Works (Nationwide).

With the end-of-year deadline fast approaching, we can expect a flurry of similar announcements in the next few weeks