NatWest has announced substantial changes to the way it will handle mortgage applications from portfolio buy-to-let landlords.
The changes will be introduced in two waves, with the first set implemented from 11 September and the second part being introduced in the final quarter of this year.
Changes in September include a full affordability assessment of the whole portfolio and the introduction of a valuation service to assess rental demand and rental income for all other properties being let.
Later in the year NatWest will extend the number of properties it will allow a portfolio landlord to own, revise its interest coverage ratio (ICR) and raise its maximum customer borrowing limit.
The lender will also update its online calculator to help brokers assess borrowers’ affordability. (A larger summary of the changes is outlined below.)
NatWest Intermediary Solutions’ head of intermediary mortgages Graham Felstead (pictured) said: “The new Prudential Regulation Authority (PRA) requirements have given us the opportunity to review our whole approach to the buy-to-let sector and I am delighted that we will continue to lend to both non-portfolio and portfolio landlords with an enhanced proposition for intermediaries and their customers.
“With any change comes an element of uncertainty, but by making our intentions clear now and developing our calculator we hope that brokers and their customers can be reassured that they will be able to count on NatWest as one of their key lenders in this market.
“We will communicate clearly with intermediaries over the coming weeks about what changes they need to make and what we will be doing differently so that we can have a smooth transition come 11 September when these changes are implemented.”
A summary of the changes being introduced from 11 September:
- Updated buy-to-let calculator hosted on NatWest’s intermediary website which will make it easier for brokers to assess customers’ affordability;
- To ensure customers can afford all existing mortgage commitments the lender will require additional information on their other properties (residential and buy-to-let) to enable a full affordability assessment. The same stress rate will be applied to all other mortgages as well as the current application;
- A new valuation service will be introduced to assess rental demand and rental income for all other properties being let, with the results used to validate customer affordability;
- For portfolio landlord applications, additional information will be asked for in relation to landlords’ experience, use of letting agents and future plans to expand or reduce their portfolio.
A summary of the changes being made in Q4:
- Increase the total number of buy-to-let properties a landlord customer will be allowed to own from 4 to 10. The total will include unencumbered properties and properties mortgaged with another lender;
- Introduce a revised interest coverage ratio (ICR) calculation of 5.5% x 135%, reduced from 5.5% x 145%. The lender will continue to top-slice if there is a rental shortfall, taking into account any free personal income the applicant may have. In all cases, expected rent must continue to meet a minimum rental cover calculation of 5.5% x 125%;
- The maximum aggregate customer borrowing allowed will be increased to £3.5m, up from £2m;
- The current £50,000 minimum income for aggregated borrowing over £1m will be removed. All customers will be required to meet the lender’s standard buy-to-let minimum income of £25,000.
Owain Thomas is Features and Contributing Editor at Mortgage Solutions. He has previously covered the protection and mortgage industry, more recently he edited Workplace Savings and Benefits, and HRD Connect.
Owain won the Financial Healthcare Journalist of the Year (B2B) at the Headline Money Awards in 2014 and 2016. He also won the Protection Review’s Journalist of the Year award in 2012.