The Mortgage Works ups buy to let stress test to 5.5%

As from 19 December, The Mortgage Works (TMW) is to raise its buy to let rental stress rates to 5.5% for all new landlord mortgage applications.

Nationwide’s specialist buy to let arm, TMW, will apply the new rate of 5.5%, or pay rate plus 2% if higher, to all new applications unless the product term is fixed for five years or more.

Another exception to the rule is if the application is for a remortgage product of up to 65% loan to value (LTV) or less and doesn’t require further capital.

In these two cases, the current rate of 4.99% will apply.

If an application relates to a product switch or transfer of equity, the 5.5% stress test will also be avoided, providing no additional borrowing is involved.

With the aim to help landlords maintain a positive cash flow, ahead of forthcoming changes to interest tax relief, TMW also increased its Interest Cover Ratio to 145% in May 2016.

Paul Wootton, managing director of TMW, said: “[The bank] is making these changes to comply with the requirements set out by the Prudential Regulatory Authority (PRA) in its recent Supervisory Statement, to be implemented by 1 January 2017.”

Where a buy to let mortgage applicant has over £1m of buy to let borrowing with the Nationwide Group, a stress rate of 5.99% is currently applied and this will continue to be the case.

At present, mortgage interest is fully deductible, however, as from April 2020 the HMRC will limit mortgage interest tax relief to 20%.

As such higher rate tax payers will pay more, as relief will only be applied to the equivalent level of a basic rate tax payer.

 

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