Jeni Browne, head of sales, reiterates how changes to lenders’ rent to interest calculations are limiting how much landlords can borrow personally and what they can do about it.
The buy to let mortgage market is going through a big change – stress tests are getting tougher - and this is your final reminder to take action before all the lower rent to interest calculations disappear.
As mentioned a few weeks ago, the Prudential Regulation Authority commissioned a paper on responsible lending in the buy to let market – CP11/16. A large focus within this paper is on the way in which lenders assess how much a landlord can borrow based on the level of rent the property will achieve - often referred to as the stress test or rent to interest (RTI) calculation.
Since the consultation paper was published in March, we have seen a succession of buy to let lenders make revisions to their calculations. The Mortgage Works led the way, bringing its calculation up to 145% coverage. More followed including Keystone Property Finance, Foundation Home Loans, TSB and today Platform followed suit. Others lenders have made pigeon steps to 125% @ 5.5% with the expectation that they will need to increase this further.
What this means is that personal borrowers are now finding they can borrow less against their rental income and as a result, we are already seeing some borrowers who are unable to move their mortgage to a new provider as the numbers do not work on the revised calculations.
There are, however, some lenders who are holding out and haven’t upped their RTI calculations. So, if you are going to be in the market for a remortgage in the next few months, this really could be last knockings for shopping around if you are looking to borrow in your personal name. Remember, mortgage offers are valid between 60 days up until six months so you could secure a rate now even if your ERC date is a way off. Do get in touch, if you would like me to look at options for you.
There is some good news. Lenders are not being pressured to increase the RTI to limited company borrowers because different, less onerous taxes apply, so a further reason to consider borrowing through via corporate vehicle (but do seek professional tax advice first).
The full results of the consultation paper are due to be published in early October. In the meantime, if you want to read the full consultation paper, you can do so here.
You may also be interested in:
What is a stress test and why do buy to let lenders use them?
Why are buy to let mortgage stress tests getting tougher?
Stress tests: why you can borrow more via a limited company
Lock into a rate with a low RTI now and complete in 2017