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Don’t Let Your Clients Become BTL Prisoners

Posted: 07/12/2016

The Prudential Regulation Authority (PRA) proposed tighter interest rate affordability stress tests are introduced from January next year. In recent weeks, this has resulted in lenders increasing their rental cover from 125% at 5% to 145% at 5.5%, sometimes even higher.

This means that landlords borrowing funds in their own individual name will face tougher stress test calculations which will result in the amount they will be able to borrow being reduced.

If a client wants to refinance to a better deal after the changes have been implemented, only existing lenders will be able to refinance on previously agreed underwriting conditions, meaning affected consumers could find themselves trapped with their current lender.

Examples

Current Affordability Stress Tests
Annual rental income: £12,000 / 5% = £240k / 125% = £192,000 (max loan amount)

New Affordability Stress Tests
Annual rental income: £12,000 / 5.5% = £218,182 / 145% = £150,470 (max loan amount)

This is a massive £41,530 reduction!

Limited companies, however, are not impacted by this change which means lenders can keep their rental calculation at 125%.

Act Now

If you have landlords who have buy to lets in their individual names then contact them now to see if they would be better switching to a new product before affordability models tighten.

Call our Specialist Team on 01702 538 800 for guidance on the best rates and criteria available or complete one of the below short forms:

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