Yahoo Finance As lenders pull back on buy-to-let, where can you get the best deals?
Strict new Bank of England rules introduced this year have dampened mainstream lenders' appetite for offering buy-to-let mortgages.
Landlords now face "affordability" assessments based on hypothetical "stressed rates" of 5.5pc for five years, no matter the level of real interest rates.
The gradual removal of tax relief on mortgage interest, from April this year, is also restricting how much landlords can borrow. Lenders have moved to require rental income to cover 145pc of mortgage costs but have also introduced variations in what they will lend based on an individual's circumstances.
Last week, The Mortgage Works, a subsidiary of Nationwide, said it would reduce its minimum rental cover from 145pc to 125pc for buy-to-let mortgages when the borrower is a lower-rate, 20pc, taxpayer.
Customers must have three rental properties or fewer, with or without a mortgage, to qualify. However, higher and additional-rate taxpayers must have minimum rental cover of 145pc. This reflects the changes in mortgage tax relief.
Before April 2017 tax relief on "finance costs", the most important of which is mortgage interest, was given at the borrower's marginal rate of income tax. This relief is being removed gradually, by 25 percentage points a year, so that by April 2020 all finance costs will receive tax relief at the basic rate of income tax only.
Using data provided by London & Country, the mortgage broker, Telegraph Money details where landlords can get the best mortgage deals in the new market. The tables are not exhaustive, but aim to show how lenders are taking differing approaches to calculating affordability.
For instance it shows how some are applying a "top slicing" model. This is where a lender will take into account other sources of income so long as the borrower can meet a minimum threshold of rents covering mortgage interest payments.
Buy-to-let homes held in a company structure are not subject to the same rules on mortgage relief and so have largely retained the traditional requirement of 125pc rental coverage requirements.
Buy-to-let lenders | Individual assessment Buy-to-let lenders | Pound for pound remortgages Buy-to-let lenders | 5-year fix Buy-to-let lender | Tax status
David Hollingworth of London & Country said: "The tightening in criteria means that the same rental income will not support as large a borrowing amount as it might have done only 12 months ago.
"However, that’s seen lenders develop a wider range of approaches rather than adopt a blanket policy to cover all eventualities."
The volume and value of buy-to-let loans made in the first three months of 2017 fell by 2pc and 1pc respectively, compared with the last quarter of 2016, figures from the Council of Mortgage Lenders show.
Compared with the same period last year, the number of loans fell by 39pc. But this was largely caused by the rush created ahead of the April 2016 introduction of additional stamp duty on second properties.
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