Suffolk Building Society has reduced the interest cover ratio (ICR) for basic-rate and nil rate taxpayers on its buy to let and holiday let mortgages.
Those in these lower-rate tax bands will now be stress tested against a new 125% ICR assessment. The current 145% ICR on the stress rate will remain in place for higher-rate and additional-rate UK taxpayers.
Suffolk BS points out that this tiered approach reflects the fact that basic-rate taxpayers pay significantly less tax on income from property when compared to higher- or additional-rate taxpayers.
The new lower ICR tier will effectively increase the amount that basic or nil-rate UK taxpayer landlords can borrow, subject to remaining within Suffolk BS’s 80% LTV criteria.
In the case of joint applications, if one applicant is a basic rate taxpayer and the other a higher rate taxpayer, both parties will be treated as if in the higher-rate band, requiring 145% ICR.
Suffolk BS said this change is likely to appeal to those in the lower tax bands, including expats, who are often basic or nil-rate UK taxpayers, as well as those buying in areas where property prices are higher than average.
Suffolk Building Society’s head of mortgages, Charlotte Grimshaw says: “By providing landlords with greater flexibility in terms of affordability and the ability to borrow more, we are helping them continue to provide good quality properties for tenants.
“These ICR changes complement our BTL light refurb mortgage product which bases the rental calculation on a property’s estimated rental income after refurbishment work has been completed, and not on its current rental value.”
She adds that by reducing ICR demands the building society is giving brokers another option for their landlords clients who have had to cope with higher inflation and interest rates over the past year.
