The lender said it had taken the decision to raise its calculation to take account of the changes in landlord tax relief to be implemented from April 2017 which will put new stresses on landlords’ ability to service mortgage payments.
From 8pm next Wednesday, landlords applications will be assessed using the reference rate or current product pay rate, whichever is higher. Its reference rates remain unchanged.
The reference rate is 5% for applications of 65% loan-to-value (LTV) and below, and increases to 5.5% for applications up to 75% LTV. Borrowers taking a five-year fixed rate will be assessed on a rate of 5%.
The changes will be phased in over a period of four years, after which time individual landlords will be taxed on their turnover rather than profit as the right to deduct mortgage interest is taken away. At the same time, the maximum amount of tax relief which can be claimed by landlords on their mortgage payments will be reduced from 45% to 20%.
Kevin Purvey (pictured), director of intermediaries, said: “With the upcoming changes to mortgage tax relief for landlords, there will be a detrimental impact for many buy-to-let investors. We have made the decision to adjust our rental calculation to ensure that applicants can afford their mortgage both now and in the future.”
