Barclays said analysis of the first wave of applications revealed the average income for customers using disposable income was more than double the median income across its buy-to-let mortgage book. The typical loan size being taken is 40% higher than its average buy-to-let advance.
The move to assess a landlord’s personal income and expenditure was taken following a series of focus groups with customers and intermediaries.
A spokesman for Barclays said: “We found when looking at the interplay of interest cover ratios, stress rates and rental yields that the market’s current formulaic approach to interest cover ratios could restrict maximum loan-to-values (LTV) on some properties in desirable areas to as low as 40%.
“The lower the yield, the lower the maximum LTV that can be made available. However, by using disposable income to bolster the rental income calculation for affordability we can lend in those areas at LTVs up to 75%.”
Customer feedback pointed to a greater focus on personal income rather than potential rent when investors began their hunt for a buy-to-let property and many were unaware of the requirements for interest cover until they were well into the search process.
“Customers were asking us why we even needed to know what the rent was because they considered themselves to have more than enough income to cover the loan payments without even using the rent,” said the spokesman.
Brokers who attended the focus groups raised the issue of LTV restrictions as a result of interest cover ratios. They said in some cases customers had to raise finance against their own home or against another buy to let to increase the size of their deposit.
Barclays said that by using disposable income it meant these customers only needed one loan and could get the LTV they want rather than the LTV an interest cover ratio restricts them to.
The lender said it would not proceed with the application if the affordability assessment indicated that the customer was reliant on rental income to cover their living expenses.
The bank also believes that by making these changes it is helping to ‘future proof’ its buy-to-let business as the market becomes more tightly regulated.
