How will the new Buy to Let criteria changes effect the Maximum buy to let mortgage offered by UK Lenders.
For those landlords looking to get the Maximum buy to let Mortgage we are certainly looking at a different landscape. The Prudential Regulatory Authority (PRA) has flexed its muscles and forced Buy to Let Mortgage Lenders towards a standardised approach to increase the rental coverage in preparation for future interest rate rises. 1st January 2017 sees the implementation deadline of a minimum recommendation of 125% coverage based on a notional interest rate of 5.5%. With further changes to affordability behind the scenes expected by 30th September 2017.
So what has been the fall out and how can you get the Maximum buy to let mortgage? Well most Buy to Let Mortgage Lenders have taken on board the sentiment, and in some cases gone a stage further, with 145% cover fast becoming an industry norm with greater background checks on overall affordability.
For example, prior to the changes you could have conceivably seen rental coverage 125% @ 3.99%, which based on a loan of £200,000 would mean a minimum rental of £832pcm. However now based on 145% at 5.5% the rental would need to be £1,330pcm. A massive hike.
As you would expect from Niche Advice we are versed to identify the best products for our clients’ advantage. For starters the PRA directive to Buy to Let Mortgage Lenders is to apply this stress test over a five year period so 5 year fixed rates avoid the need to factor in often high reversionary rates, and give Buy to Let Mortgage Lenders more comfort in using 125% than a higher buffer.
Furthermore, 145% factors are more likely to be applied by Buy to Let Mortgage Lenders to individuals in a higher rate tax bracket with 125% reserved for individuals on the lower band, and importantly limited company buy to lets which is a growing sector.
If the rental income coverage is still a problem then we have access to Buy to Let Lenders that are using the PRA tolerance to factor in earned income provided affordability is there, and in fact one Buy to Let Lender that only works on earned income.
There is also one Buy to Let that has regional rental coverage factors to help out the London market but whether this approach will be allowed to continue must be brought into question.
What is certain is the formulas to work out the Maximum buy to let mortgage products are no longer straight forward and the advice around Buy to let Mortgages will need to be much more tailored to each individual client. There are now multiple factors that no longer lend themselves to quick analysis via comparison site aggregators, so if you need assistance enlist the services of a Buy to let Specialist Mortgage Broker, such as Niche Advice.
If you looking for the Maximum buy to let mortgage then complete the contact form on this website or call T: 020 7993 2044.
Author: Payam Azadi
Payam Azadi is a partner at Niche Advice who are whole of the market Independent Mortgage Brokers. His role is very much focused on Property financing both on residential and commercial lines.