Lenders know the Chancellor’s measures will have an impact on the sector and some feel the need to react to that now
Although the Government’s proposed cuts to landlord tax relief do not take effect until 2017, the market is already reacting to them. TSB is the latest lender to increase its rental cover calculation amid concerns in the industry that landlords could struggle with higher costs as a result of the cuts.
Santander is currently the only lender among the big banks to hold its rent cover ratio at 125 per cent at 5 per cent, which is sure to boost its already attractive proposition for brokers. However, it will no doubt follow the trend at some stage so it is a good opportunity to use some of its attractive buy-to-let rates, especially on larger loans.
Late last year, Barclays stated it was to raise its rental cover ratio to 135 per cent on all new applications, citing as the reason its expectation that “landlords may incur higher costs as a result of the tax change”. Paragon and Mortgage Trust have made similar changes.
It is not surprising that so many lenders feel cautious. Whether or not they believe the steps taken by the Government are necessary, they know those steps will have an impact and some feel the need to respond to that now. What is worrying is that those implementing the changes may not fully understand these repercussions.
Of course, since my previous article more dramatic changes have been proposed – namely, the hike in stamp duty for buy-to-let properties and second homes announced in the Autumn Statement. Aside from causing a surge in buy-to-let purchases ahead of the implementation of the new rules in April, the move could further affect product development as lenders factor in the additional fees landlords will face.
The industry is understandably worried. In an interesting recent article in the Financial Times, Paragon boss Nigel Terrington suggested the Government was wrong in its concern that buy-to-let was “dangerous”, adding that better data should be used before making any more policy changes.
Some of the measures being implemented by George Osborne will have far-reaching effects. Doubtless the Chancellor and the Government think the plans being put in place are for the good of the sector. But, as has been said frequently, there are concerns that the market is not fully understood.
If major decisions are based on insufficient or incorrect data, things really could get challenging.
Ying Tan is managing director at Buy to Let Club