Buy to Let rental calculations are getting tougher

Buy to Let rental calculations are getting tougher so you better move fast if you want your money out or want to borrow at higher loan to value.

• Why is it getting harder?
• What does this mean for me and my portfolio?
• Mortgage amounts will be less unless you act now!
• Are there still lenders that work on the payrate of the mortgage product?

If you are looking to purchase or release money out of your buy-to-let the amount you will be able to borrow is likely to be less.

Woolwich / Barclays are the latest, in a long line of significant buy-to-let lenders, to announce today that they will be stress testing their buy-to-let mortgages by applying a higher notional interest rate figure when determining their affordability rather than the pay rate of the product.

The nominal rate is 5.79% (from 19^th May) whereas up until now it has been based on payrate (as low as 3.29% depending on the mortgage product selected).

What does this mean to new Woolwich customers, well previously if you rental income was £500 a month you could borrow £145,900 as an interest only mortgage, now it is just £82,900.

This reduction will hit professional landlords hardest as they realise capital is king and gear their assets up to purchase more stock.

ARE THERE STILL LENDERS THAT WORK ON PAYRATE

To be fair to Woolwich they have held out to the pressure of a stress tested rate for the longest of all major buy-to-let mortgage originators.

At the time of writing there are still half dozen lenders (mainly building societies) that still operate on payrate but whether they will be able to hold this position remains to be seen. My advice would be to get in touch now to see how we can help with your own situation.

THUMBS DOWN This move has been brought about as a backlash to the Mortgage Market Review on residential mortgages. The lenders are replicating their internal processes for consistency but buy-to-let is a ‘non-regulated’ activity and the customers are businessman and woman and are much more acutely aware of the associated risks than a novice first time buyer who needs the added consumer protection.

Niche Advice specialises in complex mortgages to find out more on generous buy to let mortgage assessments please call T: 020 7992 2044 or complete the Contact Form to the right of this page.

Payam Azadi is a partner at Niche Advice Ltd who are Independent Financial and Mortgage Advisers in London.