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Foundation Home Loans preparing for rental coverage hike

  • 17/05/2016
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Foundation Home Loans preparing for rental coverage hike
Buy-to-let lender Foundation Home Loans will increase its rental calculation for individual applications from 125% to 145% in mid-June, amid regulatory plans to tighten underwriting in the market.

In April, Nationwide’s buy-to-let lender The Mortgage Works increased its rental coverage demand from 125% to 145%.

Foundation said landlords are likely to favour limited company structures for buy-to-let investment in the future as incoming tax relief restrictions on investors are prompting lenders to revisit rental coverage calculations.

The industry is currently awaiting the outcome of a consultation published by the Prudential Regulation Authority on underwriting guidelines for buy-to-let lending.

Simon Bayley, commercial director, said the lender had received positive feedback in response to its decision to widen access to its limited company range in November. The rental coverage calculation for limited company buy-to-let products will remain unchanged at 125%.

“Intermediaries and their landlord clients are recognising the efficacy of a limited company option and as long as there is a recognition of the pros and cons, the scales are coming down more heavily in favour of this approach,” he said.

“Foundation Home Loans supports the regulator’s intervention to enhance the way that individual landlords are protected by a more rigorous affordability system, but also recognise that experienced landlords are more than capable of assessing risks surrounding exposure to repayment of a loan in the event of rental shortfall.”

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