Cut to tax relief results in Barclays upping rental cover ratio

From 7th December Barclays (Woolwich) will increase its rental cover ratio from 125% to 135% for all new buy to let mortgage applicants.

As announced in the Summer Budget, the government will phase out higher rates of tax relief over a period of four years when instead, the basic rate of 20% will apply.

Barclays believes that landlords may incur higher costs as a result of this change in tax regime and has amended its affordability calculation accordingly.

In a statement Barclays said:

"As a responsible lender, Barclays wants to ensure that our aspiring landlord customers can afford the increase in tax liability once these changes come into force.

"The increase in the rental cover ratio will ensure we protect our new customers as they look to invest in buy to let in the long term."

There will be no other changes to the affordability calculation. The current affordability rate will remain at 5.79%.

Barclays changed its affordability criteria earlier in the year, allowing applicants to use personal disposable income to make up any shortfall in rental cover calculation.

Jeni Browne, Head of Residential and Buy to Let Lending, Mortgages for Business, said:

‘This may well be the the start of an industry-wide shift in lending criteria and calculations. It is prudent to prepare for the upcoming change to tax relief and we would advise buyers to seek professional advice before making any new commitments. It is equally important to discuss individual circumstances with an accountant or tax adviser to ensure investments are safe-guarded for the future.’

All existing background buy to let and permission to let mortgages will continue to be assessed at 125% as part of the overall affordability calculation.

Similarly, existing Barclays buy to let customers looking to switch rates will be unaffected by this change.

Applications submitted prior to 7th December will be assessed using the current criteria.

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