One of the UK’s largest buy-to-let (BTL) mortgage lenders has reduced its ‘stress test’ rules for landlords applying to borrow funds both for remortgages and new purchases.
The Mortgage Works, which is the second largest BTL lender and is part of the Nationwide building society, reports that many landlords have been unable to remortgage or acquire new properties because of the more onerous rental calculations that have been forced on lenders by recent higher interest rates.
Its new rules will enable landlords to borrow more money after reducing its ‘stress test’ rate by half a percent.
Lenders use unique rules for BTL mortgage affordability assessments. This includes using a Interest Cover Ratio (ICR) to determine the annual interest charged on the loan,and then working out what the percentage of the rental income will be needed to pay it – called the Rental Cover Rate (RCR).
So on a £350,000 loan for example, The Mortgage Works is now using a 4% rate which gives an annual interest rate of £14,000. Like most other lenders, it asks that the rent is between 125% and 145% of the ICR sum, so the minimum rent being charged on the property need to be £17,500 or £1,458 a month.
“These positive changes to our stress rates will serve to boost affordability,” says Damian Thompson (main image), Director of Landlord at The Mortgage Works.
“They will enable landlords to borrow more with us but, at the same, will ensure that we continue to lend responsibly.”
Jeni Browne of Mortgage Finance Brokers (pictured), comments on the change, saying: “Seeing the UKs largest Buy to Let lender tackle this head on by reducing their rental calculations thus allowing landlords to borrow more per pound of rental income, will mean that property investors will be able to remortgage thus accessing better mortgage rates, and get investing once more.”
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