Want to know how much you can borrow? Chris Longhurst, consultant mortgage broker explains what you will need to provide us with going forwards.
Well, what a momentous year 2016 turned out to be. In addition to the sad loss of many icons, we had Brexit, Trump, Aleppo and the Zika virus. As we entered December it was no surprise that the majority of us were looking forward to saying goodbye to 2016 quietly, whilst hoping 2017 might not be quite as bad.
Well, we can’t say goodbye quite yet. Following new underwriting guidelines (as set out by the Prudential Regulation Authority), pretty much all lenders have now declared how buy to let applications will work for them into the New Year, so it is time for you to plan ahead.
Up until recently we could provide you with the loan amount you were likely to achieve based on the property value and expected rental income alone. This was mostly worked out based on an Income Cover Ratio (ICR) of 125% stressed at a notional rate of 5% (known as the Rent to Income calculation).
However, from 1st January 2017, RTIs will move away from a one-size-fits-all approach and will depend on a number of different factors.
In addition to the property value and rental income in order for us to determine how much you will be able to borrow, you will also need to provide us with the following information:
- Details of your tax band, i.e. Whether you’re a basic, higher or high rate tax payer (If you are part of a joint application, we will need the information from both of you).
- Details of the borrowing vehicle, i.e. Whether you are going to hold the property in a limited company or personal name
- Your gross rental income across your current property portfolio
- What your actual income is from all sources (rent and non-rent), PAYE or self-employed
- Details of your existing portfolio including headline numbers of total value, outstanding mortgages, monthly rental and monthly payments
- The type of mortgage product you require – fixed or tracker and the number of years
Only once we have all of these details to hand will we be able to work which new ICR to use, e.g. 125%, 145% or 160%. Mortgage rates less than five years will then be stressed at a minimum of 5.5%.
As you can see, it’s going to get a lot more complicated and you’ll need to make sure you have all your paperwork in order. If you need more information or clarification on what to do, please get in touch.
We are open right up until 23rd December and back in the office from 28th December. In the meantime, I wish you all a very happy Christmas and a prosperous New Year.
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How the new buy to let underwriting standards will affect lenders and borrowers
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21st December 2016