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Lenders Tighten Criteria For Landlords With Tax Relief Change On Horizon

The chance of a landlord being able to make a low-yielding property 'wash its face' without putting down a substantial deposit now looks even less likely than a team like Leicester City winning the Premier League.

That is because The Mortgage Works (TMW), the buy to let (BTL) division of Nationwide Building Society that provides loans to one in seven landlords, has announced that as from Wednesday the 11th of May 2016, it will be increasing the rental cover requirement rate from 125% to 145% for all BTL mortgage applications.

Rental cover is expressed as a percentage of the mortgage cost and is designed to help protect a positive cashflow for BTL landlords. TMW will also be withdrawing from lending above 75% loan-to-value (LTV) and will no longer offer products at 80% LTV.

These changes have been implemented in response to the forthcoming changes to landlord tax relief, which will start to be phased in from April 2017. At present, mortgage interest is fully tax deductible, but from April 2020 tax relief on mortgage interest will be limited to 20%. This means that higher tax rate payers will pay more tax as relief is reduced to the equivalent level of a basic rate tax payer.

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