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The UK’s biggest buy to let mortgage lender has become the first to place lending restrictions on landlords in higher tax brackets. Currently, landlords borrowing money from Birmingham Midshires are expected to charge rents equal to 125% of their monthly mortgage repayments.
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125% is the standard amount required by lenders when assessing a buy to let mortgage. However, some lenders have taken on board a report from the Bank of England that recommends they take into account a landlord’s overall costs when deciding whether or not to loan them money. These lenders are now insisting upon income of 145% to cover the monthly mortgage payments.
Lenders Assessing Landlords on their Tax Liability
Birmingham Midshires is introducing a system whereby landlords will be assessed on whether they are higher rate tax payers or not. This will then affect the rental cover ratio offered by the lender. The lender is also increasing the maximum age a landlord can borrow money, from 75 to 80.
Landlords Increasing Rents to Cover Costs
Mortgage brokers are warning that landlords will have no choice but to increase rents in order to qualify for buy to let mortgages. There is already some evidence that landlords are putting rents up, so any major changes to the way lenders offer mortgages is likely to exacerbate the problem.
Landlords whose business is set up as a limited company will not be affected by the changes to lending rules, as they pay corporation tax rather than income tax on their earnings.
