OneSavings Bank and Axis Bank are the latest lenders to revise their affordability tests for new buy to let business.
As from 28 December, OneSavings Bank will implement a rental cover stress rate of 5.5% or the initial pay rate, plus 1.55% - whichever is higher.
Remortgage clients with no additional borrowing will not need to adhere to a minimum stress rate. In these cases, rental cover will be assessed against the initial pay rate plus 1.05%.
As for five-year fixed rate applications, there will be no change, and they will continue to be stress-tested at the initial pay rate.
The definition of a standard property has also been revised by OneSavings Bank to include House of Multiple Occupation (HMOs) or multi-lets/student lets of up to five rooms.
This new definition will also apply to blocks of flats with up to four units, as well as single dwellings.
With regards to the bank’s definition of a portfolio borrower, this is now defined as a person who owns four or more investment properties, including the subject property.
If an applicant owns three investment properties or fewer, including the subject property, they will be defined as non-portfolio borrowers.
These definitions are not applicable to those borrowing through limited companies.
Richard Wilson, group chief credit officer, OneSavings Bank said:
“We believe what we have delivered is a robust and responsible revision to our policy in line with the new Prudential Regulation Authority rules.”
David Whittaker, chief executive officer, Mortgages for Business added:
“Their definitions between smaller and larger HMOs and blocks of flats are helpful in allowing brokers to determine where these transactions sit within the Kent Reliance and InterBay brands and will be welcomed by the market.”
Another lender to revise its buy to let stress calculations is Axis Bank.
As from 1 January, the lender will raise its Interest Coverage Ration (ICR) for individuals opting for a product term of less than five years to 145% of pay rate, plus 2%, with a floor of 5.5%.
Applications from limited companies will be reviewed in terms of 125% of pay rate plus 2%, with a floor of 5.5%.
As for landlords applying for a five-year fixed mortgage product, the ICR will be 145% of the pay rate, or 125% for limited companies.
Individual and limited company remortgage applicants, who are not requesting additional borrowing, must pass a test of 125% at 5%, applicable on the property to be financed.
Applications from basic rate taxpayers may be assessed at 125% at 5.5%.
Axis Bank is said to have adopted a ‘flexible approach’ to its buy to let underwriting assessments.
The bank says it will carry out a background income assessment, to support any ICR shortfall, but only for applicants who have more than 100% rental coverage. This is subject to prior agreement with Axis and only applies where the loan size is at least £350k.
Where the loan amount is below the 100% rental coverage floor, applications will be considered on an individual case basis, as long as the applicant meets the regulatory high net worth definition of an annual income of £300,000 a year, along with a net worth of £3m excluding their buy-to-let portfolio.
Andrew Ferguson, head of buy to let at Axis Bank said:
“We are pleased to offer our broker partners a range of solutions to meet the needs of their landlord clients. Our personalised assessment of each case enables us to understand the needs and challenges faced by landlords, ensuring we lend responsibly at a time of increased cost pressures for the private rental sector.”
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