BM Solutions is increasing the notional / stress rate used in the rental assessment for buy to let and let to buy applications.
BM Solutions current rental calculation is based on 125% of the mortgage interest at the initial pay rate or 125% at a notional rate of 5%, whichever is higher.
As from 22 November however, the lender is to introduce a notional stress rate of 5.49% for loans above 65% LTV.
In addition, a stress rate of 4.99% will be used where the LTV is less or equal to 65%. This rate also applies to applications for a five-year fixed rate, whatever the LTV.
Phil Rickards, head of BM Solutions, says: “In order to provide first class products and service to borrowers we monitor our criteria and processes continuously.
This change ensures landlords have sufficient rental coverage for their buy-to-let mortgage.
Importantly there’s no change to the application process and the calculations will be made automatically.
However, in a rapidly changing environment we want to give advisers as much notice as possible.”
Jeni Browne, head of regulated and buy to let lending, Mortgages for Business says:
“As a company, we continue to encourage landlords to consider five year fixed rates when looking at their mortgage options, as this will provide a safeguard against rate rises. Lenders are also taking this stance as their five year rates come with a more generous rental calculation.”
It was reported last week that the buy to let sector’s rapid growth has led to concerns from some policy makers, and that brokers expect the Bank of England to introduce stress tests for buy to let loans.
Similarly, the Chancellor confirmed last month that the Bank of England’s Financial Policy Committee (FPC) has been given powers to intervene in the buy to let market, with a consultation launched to determine what these powers will be and when they will come into play.