Brokers ask: Is this the final death knell for landlords with this lender?
Santander has announced that it is increasing interest cover ratio (ICR) calculations on its buy-to-let range, starting Wednesday, August 30.
The high street lender will be raising affordability rates on its buy-to-let standard rate from 7.59% to 8.52%, and on its five-year buy-to-let fixed and on pound-for-pound buy-to-let remortgage from 6.09% to 7.02%.
Santander’s ICR for customers with a higher tax band will be lowered from 145% to 140%.
Meanwhile, UK news agency Newspage sought the views of brokers on how Santander’s latest move would impact new buy-to-let applications, what it meant for those needing to remortgage their buy-to-let properties, and whether it would significantly affect the viability of buy-to-let.
Ashley Thomas, director at Magni Finance, said the lender’s decision to increase the ICR calculations was “an absolute hammer blow to the buy-to-let market.”
“Landlords have already had a tough time with rising rates,” Thomas stressed. “This will make it more challenging, especially for those with lower yields in London. For many landlords, the walls really are closing in.”
Justin Moy, managing director at EHF Mortgages, agreed, saying that any increase in ICR calculations made it far more challenging for landlords to borrow.
“The move from Santander is a little ‘out of the blue’ given recent fixed rate reductions,” he noted. “It looks more like an opportunity to price themselves out of buy-to-let for a while, similar to what NatWest did in June, and given there is little purchase or remortgage business in this sector, it’s not a market meltdown by any stretch.
“If this means that Santander can improve its offering for residential products, this might be some brilliant news. It’s just news that has been wrapped up the wrong way.”
Ross McMillan, owner and mortgage advisor at Blue Fish Mortgage Solutions, commented that for most of the mainstream lenders, buy-to-let had “become the problem child that they would seemingly much rather have sat on the naughty step perpetually than welcome back into the playroom.”
“Santander has just raised the stakes in effectively banishing their buy-to-let business well into the corner of a darkened room, and time will tell if it will ever be let out again or whether this is a final death knell for landlords with this particular lender,” McMillan continued.
“In general, it’s alarming that – seemingly regardless of what trends are evident in the general residential mortgage market – either via outrageous product fees or unreasonable stress testing, lenders seem hell-bent on ensuring that landlords pay a heavy price for attempting to continue to plug the gap that governments are seemingly unable or unwilling to and provide desperately needed rental property. Actions such as this must mean many are close to selling up and so, who will plug the gap then?”
Natalie Anderson, mortgage and protection adviser at Connect Mortgages, said she would rather have seen Santander withdraw from the BTL market temporarily than what she called “this pretty unworkable increase in ICR calculation.”
“This is more bad news for the BTL lending sector and landlords overall,” she remarked.
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