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Changes to ‘buy to let’ lending criteria are making it more difficult for investors to secure high loan to value lending. That’s the view of a leading expert who believes that lenders are making it harder for investors to take out large mortgages by changing the way in which they calculate loan sizes.
Henry Knight, a London mortgage broker, believes that changes to the way that lenders calculate how much an applicant can borrow are making it harder for buy to let clients to maximise their lending. Keep reading to find out more and why approaching a specialist may prove to be beneficial.
A recent change in criteria by Birmingham Midshires, one of the UK’s leading buy to let lenders, provides an example of how criteria changes are making it harder for landlords to maximise their borrowing. The lender has recently changed its policy from calculating the rental coverage based on the interest pay rate of the deal to a notional 5 percent.
“What this means is that instead of calculating the loan size based on the payments that a landlord will actually pay, Birmingham Midshires are calculating the lending based on a notional rate of 5 percent,” says Islay Robinson, CEO of London mortgage advisor Enness Private Clients.
“In many cases this has had the effect of reducing the maximum loan size. This means that applicants have to use more of their available capital as the deposit.”
Many lenders now use a ‘notional’ pay rate to calculate the maximum lending on a buy to let mortgage. However, there are a small number of institutions including Woolwich and Clydesdale who still calculate the loan size based on the interest pay rate. NatWest also offers a slightly more flexible approach for those clients on higher incomes.
Mr Robinson, the large mortgage and buy to let expert, said: “If investors are looking to maximise their buy to let borrowing then it can pay to speak to an expert. This is particularly true in London and the South East where house prices may be rising faster than rents.
“Finding a lender that is prepared to advance a higher loan can have a range of benefits. Not only does an investor have to use less of their own capital but a higher loan can have additional tax advantages. And, a qualified mortgage broker is likely to have a wider choice of lending options, particularly for clients looking for million pound mortgages.”
Mortgage expert Henry Knight believes that lenders should adopt a more flexible approach. He told Mortgage Introducer: “Clearly lenders need to ensure that clients are in a position to meet void periods and lend responsibly, however a more thorough approach to individual circumstances would enable us to widen the net.
“In order to keep apace of this growing demand, we would like to see more lenders follow the example of banks like Clydesdale, Woolwich and Nat West in offering a greater number of options to buy-to-let investors particularly looking in more depth at individual circumstances rather than adopting a more blanket approach.”