The Mortgage Works (TMW), the buy-to-let arm of Nationwide Building Society has relaxed its minimum interest cover ratio (ICR) for lower rate tax payers to 125 per cent for buy-to-let mortgage applications.
Rental cover is a percentage of the mortgage interest and is designed to help keep cashflow in the black for BTL landlords.
In May 2016, TMW announced changes to the ICR to 145 per cent and reduced the maximum loan to LTV to 75 per cent, in a move to protect landlords ahead of the amendments to landlord tax relief.
Following the publication of the Prudential Regulation Authority's Supervisory Statement on Buy to Let Underwriting Standards in September 2016, TMW changed its offering to separate out ICRs for higher and lower rate tax payers.
To qualify for the 125 per cent interest cover ratio, borrowers must be able to provide income proofs to support their lower rate tax status and have a maximum portfolio size upon completion of three properties.
The maximum annual taxable income for lower rate tax payers is £45,000 in England and Wales and £43,000 in Scotland.
Provider view
Paul Wootton, managing director of specialist lending at TMW, said: “We are taking steps to make sure that those buy-to-let borrowers who are paying tax at the lower rate see that reflected with appropriate measures of affordability.
“As a result, we are reducing the interest cover ratio to 125 per cent for new applicants who are not subject to the tax relief changes, which will enable them to borrow affordably while recognising the need to help safeguard rental cover for all landlords over the coming years.”
Adviser view
Matthew Fleming-Duffy, director at Bournemouth-based Cherry Finance, said: “You have to ask why The Mortgage Works hadn’t done this is the first place and there’s a certainly a bit 'late to the party' about this, even though it’s a positive move.
"The maths makes sense, it’s as simple as that, however you look at it and crunching the numbers from a landlord's perspective makes sense and it gives the client the ability to predict what is happening over the next few years and they’ve got time to react.
“However, TMW really need to update their IT systems. Their application form looks like it’s a decade old. They’re not asking questions at application stage and they should be focusing on that. Everyone can make mistakes and I know it’s a difficult world we live in, but they have to have systems in place that are fit for purpose and I’d encourage TMW to take a look at that.”
Charges
Not applicable
Verdict
The Mortgage Works obviously has the support of its owner, one of the UK’s largest mortgage lenders Nationwide, so barring a large jolt in the housing market it is likely to remain a stable option. However, there is growing dissent in the IFA community that they are possibly not as sharp as they used to be and have become more difficult to deal with over-regulated policies and interpretations of those regulations.
