"Landlords have already had a tough time with rising rates, and this will make it more challenging, especially for those with lower yields in London."
Santander has announced that, from Wednesday 30th August, it is increasing its ICR calculations.
Buy-to-let affordability rates have increased from 7.59% to 8.52% for standard applications. Five-year fixed rate and pound-for-pound remortgage calculations have increased from 6.09% to 7.02%.
As part of the changes, Santander's ICR for borrowers with a higher tax band has decreased from 145% to 140%.
UK news agency, Newspage, sought the views of brokers on how this will impact new buy-to-let applications, what it means for those needing to remortgage their buy-to-let properties and whether this will be the final nail in the coffin for buy-to-let.
Lewis Shaw, owner and mortgage expert at Shaw Financial Services, said: "This is a disaster for the buy-to-let sector and represents over an 11% increase in rents required to achieve the self-financing ICR calculations on five-year deals. We already know tenants are suffering eye-watering rents and spending more of their income on housing costs, making it even worse for those trapped in the private rental sector. It's time the Government stepped in. Otherwise, we are looking at a housing crisis in the making. We can't allow Santander or any other lender, for that matter, to destroy the buy-to-let market with an affordability blunderbuss."
Ashley Thomas, director at Magni Finance, commented: "This is an absolute hammer blow to the buy-to-let market ahead of the Bank Holiday weekend. Landlords have already had a tough time with rising rates, and this will make it more challenging, especially for those with lower yields in London. For many landlords, the walls really are closing in."
Riz Malik, founder and director at R3 Mortgages, said: "Santander might as well hang a sign on the door that reads 'Closed for Buy to Let Business in London and the South'. This move reduces the already limited options available and curtails market competition, which isn't promising for landlords and tenants. However, announcing this just before the Bank Holiday weekend might have been a good time to bury bad news."
Justin Moy, managing director at EHF Mortgages, added: "Any increase in ICR calculations makes it far more challenging for landlords to borrow, so the move from Santander is a little 'out of the blue' given recent fixed rate reductions. It looks more like an opportunity to price themselves out of buy-to-let for a while, similar to what NatWest did in June, and given there is little purchase or remortgage business in this sector it's not a market meltdown by any stretch. If this means that Santander can improve its offering for residential products, this might be some brilliant news. It's just news that has been wrapped up the wrong way."
