Tighter buy-to-let criteria not dampening lending

Sarah Davidson

January 19, 2016

Stricter buy-to-let stress testing is unlikely to dampen lending to landlords in most areas of the country, research from the Buy to Let Club claims.

The specialist distributor published analysis of buy-to-let lending it arranged in the fourth quarter of last year and found the average rent cover based on the rentals provided for applications was 163% at 5.5%.

This compares to a historical norm of 125% at 5% however a slew of lenders have recently imposed stricter stress testing following several announcements over the past year reducing tax breaks for landlords.

TSB, Paragon, TMW, BM Solutions and Godiva have all tightened criteria and now calculate rental cover at 125% at 5.5% for 65% loan-to-value and over.

Ying Tan, managing director of the Buy to Let Club, said: “This analysis shows that LTVs are sensible and rents are high enough to sustain the extra rent stress testing lenders are implementing.

“The analysis is nationwide, however the rent coverage is tighter in the South.”

The only mainstream lender that still operates at 125% at 5% is Santander.

Tan added: “With its slick processing Santander is gaining business particularly in London and the South East where yields are lower.”

A spokeswoman from Santander said the bank had no immediate plans to tighten criteria but added: “Ahead of the planned market and tax changes being introduced from April 2017, we will review our stress rates and as always, prior to any changes being implemented, we will ensure the market is made aware of them.”

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