Building Society’s tiered approach to Interest Cover Ratio

Suffolk Building Society has introduced a tiered approach to its Interest Cover Ratio assessment for buy to let and holiday let mortgages.

A new 125% ICR on the stress rate is being introduced for basic or nil-rate UK taxpayers. The current 145% ICR on the stress rate will remain in place for higher-rate or additional-rate UK taxpayers.

These tiers have been agreed upon as the tax payable for basic or nil-rate UK taxpayers for income on property is significantly less than the liability payable for higher or additional rate UK 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 the Society’s 80% loan to value criteria.

The society says the changes may appeal to those in the lower tax bands, including expats, who are often basic or nil-rate UK taxpayers, and they will also be of interest to those 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. Although the mandate to make energy-efficient changes has been removed, we know that responsible landlords still want to make upgrades that result in better, safer and greener homes for the private rental sector. 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.

“We’re also not yet home and dry in terms of inflation and interest rates, so by reducing our ICR demands, we’re giving brokers another option for their landlord clients in the lower tax brackets.”

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. There is no upper age limit for BTL applicants. The Society will continue to consider non-owner occupiers and first time buyer landlords (on a referral basis).