The client is an accountant-cum-landlord who approached us for help to remortgage one of his personally owned rental properties to raise a deposit for a further buy to let purchase. The property is a 3-bed flat in central London which was formerly the client’s home (more than 10 years ago).
The client, fully aware of impending changes to buy to let underwriting standards, knew that he needed to get his remortgage completed before the end of 2016 in order to maximise the amount he could borrow.
Come 1st January 2017 the Prudential Regulation Authority requires lenders to tighten their Income Cover Ratios to take into account borrowers’ increasing tax liabilities and other outgoings. This means that the current industry standard of 125% of rental income will be replaced by a higher calculation and in fact, some lenders have already upped their ICRs to 145% for personal borrowers, so time was of the essence.
Added to this, lenders will also be required to increase their interest rate affordability stress tests to a minimum of 5.5%, unless the interest rate is fixed or capped for five or more years. (Generally speaking, these changes will not apply to corporate borrowers or personal borrowers remortgaging on a like for like basis but our client was looking to raise capital).
This meant that we needed to source finance from a lender which still uses the 125% stress test calculation for individual applicants and, if possible, a stress test at less than 5.5%..
We approached an intermediary only lender which currently has rates with a Rent to Interest (RTI) calculation of 125% at pay rate (3.99%) meaning that the client could borrow up to £712,500 – a massive £246,042 more than he will be able to come January.
Here are the details of the deal:
Property value: £950,000
Loan amount: £712,500
Rate: 3.99% (Lenders LIBOR + 3.61%)
Term: 25 years interest only
Borrower: Individual applicant
Lender arrangement fee: £3,995
Mortgage payment: £2,382 pcm
Rental income: £3,100 pcm
Gross yield: 3.91% pa
Consultant: Paul Martins, 01732 471616