How landlords might sidestep tough rental requirements

One of the country's leading lenders has launched a 10-year buy-to-let fixed rate in a move that mortgage experts have described as “highly unusual”.

Barclays has unveiled a 2.99% 10-year fixed rate, which not only offers payment security for a decade but also allows landlords to sidestep tough rental income requirements which apply to buy-to-let mortgages.

Barclays to consider affordability rather than applying strict rental income rules

Landlords can potentially take advantage of higher mortgage loans after Barclays launched a new 10-year fixed rate product. Buy-to-let mortgage deals with a term of up to five years are currently subject to strict rental income requirements. Landlords typically have to demonstrate that their rental income will be 45% than their mortgage payment at an interest rate of 5.5%.

However, on longer term deals – such as this Barclays product – this rule can be waived in favour of a more flexible 'affordability calculator' that assesses whether the landlord is able to repay the loan taking into account both their rental income and personal income.

The deal is at 2.99% fixed for 10 years, with a £2,000 fee. Craig Calder, director of Barclays Mortgages, said the deal was designed to provide “greater choice to individual landlord investors across the UK”. 

Mortgage expert Jonathan Harris welcomes the new product. He says: "A 10-year fix for buy-to-let is unheard of and the result of changing circumstances for the sector. What is exciting about this product is that the affordability calculator takes into account the applicant’s overall income and expenditure position - so massively benefits those applicants with strong incomes and limited commitments. 

"The upshot is that they can borrow more than previously - a welcome innovation to recent restrictive practices in the buy-to-let market."

However, brokers have warned landlords that locking into a long-term fixed rate may not be the best approach for everyone, as we see next.

Landlords warned that new product restricts flexibility

One of the main downsides of the new Barclays deal is that it comes with early repayment charges of 5% throughout the 10-year term. This means that on a mortgage balance of £150,000, a landlord would be faced with a penalty of £7,500 if they were to sell at any time in the initial ten years.

Harris adds: "Landlords need to be sure and understand the consequences of the associated charges if they have to refinance or repay the loan within the fixed-rate term.  Fixing for longer terms limits the flexibility of the borrower and who knows what changes will occur in the landlord’s situation or in the buy-to-let market during this period."

Despite these warnings, the new deal is likely to be popular with landlords in London and the South East. In recent months these buyers have seen their loan amounts restricted by high prices and lower rental yields; a problem the Barclays deal sidesteps.

Harris explains: "The product is a Godsend to those buying in London... with this new criteria around overall affordability of the applicant, investors in London now have broader options. The question is whether other lenders will follow suit."