Melton Building Society has changed its buy-to-let (BTL) mortgage range to make it more accessible to basic-rate taxpayers.
Melton Building Society said it was taking a new tiered approach to mortgage rates and changing its interest coverage ratio (ICR) for lower-rate taxpayers – a move that mortgage brokers said offers “a fresh perspective”.
The ICR will now be 125% for basic-rate taxpayers and 145% for higher-rate taxpayers.
Dan Atkinson, head of intermediaries at the society, said the change was part of the group’s strategy “to seek ways to support good-quality homes for our communities”.
“With these changes we hope to offer landlords, particularly those in lower tax brackets, the flexibility to borrow the money needed to continue to invest in quality properties that offer tenants safe and secure homes for many years to come.”
An intermediary’s guide to understanding client vulnerability
Sponsored by Halifax Intermediaries
‘Enhancing property diversity’
Nicholas Mendes, mortgage technical manager at John Charcol, said the “fresh perspective” offered by the tiered rates made BTL investing “more accessible to individuals in lower tax brackets.”
“The lowered ICR threshold reduces the rental income needed to qualify, benefitting small landlords and the housing market overall,” he added.
“This change provides landlords in lower tax bands greater flexibility to maintain or expand their property portfolios without requiring excessive rental income, potentially enhancing property diversity in the rental market.”
Mendes said that tiered lending criteria are “not yet widespread”.
“If successful, this approach could encourage other lenders to explore more flexible, inclusive options for their BTL mortgage products,” he added.
David Hollingworth, from London & Country Mortgages, said that the change was “useful” though “not a radical approach”.
“There’s a lot of lenders that have looked to offer more flexibility in their criteria to try and accommodate more borrower requirements,” he said.
“As relief on mortgage interest is only at basic rate, the cost for higher-rate taxpayers is higher. It allows lenders some latitude to apply an alternative approach for basic-rate taxpayers.
“Many have therefore applied different interest coverage requirements, which should give borrowers a little more flexibility in what they can borrow, something [that] has only become more important in the face of higher interest rates,” he added.
