BM Solutions has unveiled an “innovative” approach to addressing controversial buy-to-let tax changes.
After discussing the issue with brokers, the buy-to-let lender, which is part of Lloyds Banking Group, has developed an intelligent rental income calculator built around a borrower’s individual circumstances.
It has also made policy changes including increasing the maximum age limit to 80.
Phil Rickards, head of BM Solutions, said the company would not change the minimum rental coverage ratio of 125 per cent for basic rate taxpayers.
However higher and top-rate borrowers will get an rental coverage ratio related to their individual circumstances.
Mr Rickards said: “I’m excited that after investing considerable time and resource in a tailor-made solution rather than a one size fits all approach, we continue to support sustainable buy-to-let lending for borrowers.
“I’m confident that our approach will continue to help brokers write good quality business.
“While engaging and listening to their needs, we have put our energy into a solution which leads the market and helps navigate a changing environment backed up by the same high level of service that brokers have known for more than a decade.”
A growing number of buy-to-let lenders are demanding rental coverage of 145 per cent because of former chancellor George Osborne’s decision to restrict the amount of tax relief a landlord will be able to claim on mortgage interest to the basic rate.
Landlords have challenged the proposal and took it to the High Court, only to be told by a judge that the government had a "wide discretion" in tax matters.
As more lenders move to 145 per cent rental coverage, it has raised the prospect of some borrowers becoming mortgage prisoners because they cannot remortgage.
In September Mr Rickards said this approach was too “broad brush” and said his company was working on a different approach, which has now been revealed.
The changes are on track to be implemented before the end of the year, but will be communicated to intermediaries “as early as possible”.
The lender will also be increasing the maximum age from 75 to age 80, with minimum term remaining at five years (two years for further advances).
It will also remove its maximum five bedroom policy, restricting the maximum number of tenants to five on a single a short hold tenancy though valuers will still need to confirm that properties are adequate security.
For larger properties, with more than five rooms to let, the valuer must be satisfied that the property and local market reflects single family letting arrangements.
BM Solutions has said brokers uncertain as to clients’ tax position should advise that independent tax advice is taken.
Kevin Dunn, senior partner with Leicester-based Furnley House, said: "It is better to have a more personal touch rather than one size fits all so that is a definite positive.
