Sesame Bankhall’s senior products manager Robert McCoy (pictured), said that affordability criteria changes for buy-to-let loans in recent months were likely to ‘water down’ the shock the market could face should the Basel rules be pushed through.
“The knock on effect of the proposals could be that some clients are going to have to start looking at higher rental charges to be able to process some of the mortgage. We’re might see more and more lenders doing this with their affordability calculations,” he said.
Proposals published by the Basel Committee, which sets global financial standards, propose that lenders should be forced to hold more capital in reserve for mortgages advanced to landlords, which could act as yet another leash on the buy-to-let market. The consultation is still open is expected to close in March.
A number of lenders have tightened affordability standards on buy-to-let lending, with Santander and TSB the latest players to increase the interest rate in their rental assessment.
Some lenders have cited these changes as a reaction to the reduction in mortgage interest relief available to landlords from 2017, combined with a 3% Stamp Duty premium payable on second properties.
However, McCoy said that most lenders are currently hiding from the Basel Committee’s plans and failing to discussing the potential impact on the market.
“Some of the changes to rental calculations could be a reflection of the Stamp Duty and tax relief changes, but at the back of lenders’ minds they might be thinking at least they’ve watered down the shock of further potential changes brought about by the Basel Committee’.
“If these rules come in, what might happen is that the gap between buy-to-let and residential rates will widen because lenders will have to price accordingly for the risk,” McCoy added.
McCoy added that landlords and lenders were likely to explore different product types to offset affordability requirements.
“Rates are only going to go up so we might see the end of some these tracker deals in favour of discounted and standard variable rates.
“Some lenders have tried different things with lifetime trackers or longer-term fixed rates where the rental calculation is at the pay rate because they’re not having to do the same sort of stress testing as they would on a two-year deal.”
