Buy-to-let mortgage - C and G tighten criteria who next?

The shifting sands of the buy-to-let mortgage market continue to be reshaped by the current economic climate.The latest changes are being proposed by one of the largest buy-to-let lenders Cheltenham & Gloucester (C & G ) who are part of the massive Lloyds Banking Group which includes: Halifax, Birmingham Midshires.

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Landlords had in recent years got used to being able to finance larger and larger portfolios as lenders did away with restrictions relating to portfolio size and replaced this with individual affordability tests relating to each buy-to-let property and mortgage.

This appears to be changing again as lenders attempt to restrict their exposure to the buy-to-let market and any one landlord.

Both C & G and Platform have recently announced changes to tighten up the assessment of lending to portfolio landlords.

For example the C & G now insists on landlords with more than 3 buy-to-let mortgages to be automatically referred to an underwriter for detailed affordability checks.

It has also been reported that C&G applicants can now have no more than £500,000 in mortgages across the Lloyds Banking Group, which would be a significant restriction for buy-to-let portfolio borrowers.

Borrowers can have up to £5m mortgaged across the group, but any applications above £500,000 will need to be manually assessed. Plus the borrowers will have to have an income of at least £50,000 (to borrow less than £500,000 you need an income of £35,000).

Another feature of C&G's lending criteria is that it works out affordability on a 'notional rate' basis. What this means is that it will check you can afford your repayments assuming the interest rate is 8%.

That seems a little unfair with many of the lender's products at around 5.5%, but C&G is in fact building in a buffer to ensure that when rates rise - as they surely will - its borrowers will still be able to afford their monthly repayments.

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Some lenders work in a buffer by asking for a minimum expected rental income of 125% of your monthly repayments. In other words you need to be able to get rent in over and above what you will have to pay your lender. C&G is simply using another method.

And it's sensible to do so. Rates will increase, landlords have unexpected maintenance costs and tenants do not always pay the rent. It is right to work out affordability with a good amount of leeway.

Direction of travel

It is vital to note that all the points above are C&G's lending criteria, not Lloyds Banking Group's.

So Birmingham Midshires, for example will not necessarily look at group borrowing -- for now. But the mortgage industry is fearful that the C&G criteria change is the thin end of the wedge for the buy-to-let sector, and will lead to further changes across the group, limiting borrowing from all Lloyds Banking Group lenders.

Some believe it is only a matter of time before Birmingham Midshires (the largest specialist lender in the country) restricts its buy-to-let criteria for example. And it's fair to assume that other lenders could follow such a move.

In others words, the whole sector could further tighten which would be a disaster for business levels. The only really active buyers in the sector are professional portfolio landlords who by definition have a greater number of mortgages. Further stifling them will do nothing to help the market in general.

Latest developments in the buy-to-let mortgage market are shown courtesy of Emoneyfacts:

• Alliance & Leicester
• END DATE on buy-to-let FIXED RATE extended to 31 July, w.e.f. 24.4.09....more
• 24 Apr 2009
• Newbury Mortgage Services
• Buy-to-let FIXED RATE of 5.99% to 31.3.14 withdrawn, w.e.f. 23.4.09....more
• 23 Apr 2009
• Shepshed BS
• NEW buy-to-let STANDARD VARIABLE RATE MORTGAGE of 5.54% for term, VARIABLE BASE RATE TRACKER of 5.45% for 2 years and FIXED RATE MORTGAGE of: 5.95% for 2 years launched, w.e.f. 22.4.09....more
• 22 Apr 2009
• Newbury Mortgage Services
• BUY-TO-LET LENDING AREA amended to include GL, BS, BA, DT, BH, PO & BN postcodes, w.e.f. 21.4.09....more
• 22 Apr 2009
• Post Office®
• FIXED RATE MORTGAGES of 6.31% & 6.51% to 31.5.12 withdrawn & replaced with new rates of 6.30% & 6.50% to 31.5.12, w.e.f. 22.4.09....more
• 22 Apr 2009
• RBS IP NatWest
• Buy-to-let FIXED RATE MORTGAGE of 5.95% available via directly authorised brokers only, withdrawn w.e.f. 22.4.09....more
• 22 Apr 2009
• Lloyds TSB Scotland
• MAXIMUM PORTFOLIO unchanged at 9 properties within Lloyds TSB Group, but only 3 may be self-funding i.e. using rental only calculation....more
• 21 Apr 2009
• Northern Rock
• END-DATES on buy-to-let FIXED RATE MORTGAGES extended to 1 June, w.e.f. 21.4.09....more
• 21 Apr 2009
• Cheltenham & Gloucester
• MAXIMUM PORTFOLIO unchanged at 9 properties within Lloyds TSB Group up to a maximum of £5m, but only 3 may be self-funding i.e. using rental only calculation....more
• 20 Apr 2009
• Platform
• Buy-to-let FIXED RATE with "House Plus" criteria withdrawn, w.e.f. 17.4.09. MAX PORTFOLIO reduced to £1m and MAX PROPERTIES reduced to 3, w.e.f. 20.4.09....more
• 20 Apr 2009
• Royal Bk of Scot Mtges Direct
• END DATES on buy-to-let FIXED RATES extended to 30 June, w.e.f. 18.4.09....more
• 20 Apr 2009
• NatWest Mortgage Services
• END DATES on buy-to-let FIXED RATES extended to 30 June, w.e.f. 18.4.09....more
• 20 Apr 2009
• Woolwich
• END DATES on buy-to-let FIXED RATE MORTGAGES extended to 2nd August, w.e.f. 17.4.09....more
• 17 Apr 2009

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