Barclays to increase B2L rental cover ratio due to tax relief cut

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Barclays is set to increase its rental cover ratio as it is expected landlords will incur higher costs because of the cut to tax relief announced in the summer Budget.

From 7 December, Barclays’ rental cover ratio will increase from 125 per cent to 135 per cent for all new applications.

There will be no other changes to the affordability calculation, with the affordability rate remaining at 5.79 per cent.

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

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

In the summer Budget, he announced the gradual tapering down of tax relief for buy-to-let borrowers to the basic rate of tax from April 2017.

In a note to brokers, Barclays says it is making the change because “it is expected that landlords may incur higher costs as a result of the tax change and therefore we are amending our affordability calculation to reflect this”.

It adds: “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.”

“Coreco director Andrew Montlake says: “This is a big change from Barclays and could well spark a number of similar reviews from lenders who want to be seen to be taking into account the effect of forthcoming tax changes.

“With buy-to-let very much still in the crosshairs it would be no surprise if further action is taken against what is now seen as an easy target.”