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Important changes to our BTL criteria

Buy to Let lending criteria – important changes to ICR

As you know, the Buy to Let market recently became the subject of further regulations when the PRA announced that lenders would have to make changes to how they assess affordability on BTL applications. One of the main focuses was on rental calculations – the Interest Coverage Ratio (ICR).

We’ve developed a clear and straightforward ICR policy. It’s easy to understand and recognises that one size doesn’t fit all:

  • If each applicant's individual gross* income is less than £40k, the ICR is 125%
  • If any applicant’s individual gross* income is £40k or more, the ICR is 140%.

* An ICR of 140% will be used if any applicant indicates on the application they are a higher or additional rate taxpayer. Gross annual income includes the total gross monthly rental income from the property to be mortgaged and all other investments.

In all cases we’ll apply a reference rate of 5.5%, or 5% if a fixed rate product of five years or longer is chosen.

At the same time, we’re making the following changes for Buy to Let mortgages:

  • removal of minimum income
  • removal of minimum time in employment.

We’ll also be validating applications to ensure that the correct ICR is being applied.

This simplified approach should help make it easier for you and your clients to make informed decisions on their Buy to Let needs.