In a sign that the buy-to-let boom could be over, Nationwide has reported a drop in the amount it lent to landlords in the six months to September.
Nationwide said that its buy-to-let mortgage subsidiary The Mortgage Works lent £2.8 billion from April to September, down from £2.9 billion for the same period last year.
The building society said the drop was a result of the changes to affordability tests and tax relief coming in next year.
Joe Garner, Nationwide chief executive, said: “The buy-to-let sector is going through a period of substantial change resulting from new rules on landlord taxation and a new regulatory regime which provides guidance on underwriting and affordability standards for lending to landlords.
“As a responsible lender we took the decision to lead the market in making changes to our affordability assessment criteria to ensure our borrowers do not overstretch themselves. This is expected to result in lower buy to let lending in the second half of the year.”
The society tightened up its lending criteria for buy-to-let landlords earlier this year by upping the rental ratio cover from 125% to 145%. It also dropped its maximum LTV from 80% to 75%.
It said the move was in response to former Chancellor George Osborne’s to cut mortgage interest relief for residential buy-to-let properties to the base income tax rate, which is 20%. This is due to be phased in over a four-year period starting from April 2017. Landlords are currently able to claim tax relief on the top rate of tax of up to 45%.
Nationwide said that in the six months to September gross mortgage lending increased by 17% to £17.5 billion and net lending was up 46% to £6.0 billion.
However, underlying profit plummeted 23% from £801 million to £615 million.
It arranged a record 38,600 mortgages for people buying their first home, up 50% – representing one in five of all first-time buyers. Nationwide said it accounted for one-third of UK net mortgage lending over the past five years
Garner said Nationwide was committed to helping first-time buyers by maintaining low deposit lending and minimising costs with schemes such as Help to Buy and Save to Buy.
He said: “We have taken a stand to help more people onto the housing ladder. As part of our five-point plan, launched to underline our commitment to our members, the Society will make at least £10 billion a year available to lend to first-time buyers, where it is appropriate and responsible to do so.
“We have also protected the rates on Nationwide’s Help to Buy ISA and Save to Buy products following the base rate decrease. This will help ensure the road to home ownership does not get longer for those saving to buy their first home.”
“At the same time, the society passed on the base rate cut in full to base mortgage rate, standard mortgage rate and tracker mortgage members, thereby lowering their monthly payments.”
