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Property Tribes Mortgages (PTM) - buy-to-let update
2016 has been a year of seemingly unrelenting change for the buy-to-let market which is likely to continue into 2017 as lenders, brokers and landlords adapt to the various tax and regulatory developments being imposed by the Government and the Prudential Regulatory Authority (PRA).
The most recent announcements were from the PRA which published its supervisory statement on buy-to-let underwriting standards at the end of September. The new standards are to be implemented by lenders over a 12 month period, with a deadline of 1st January 2017 for more straightforward changes such as the interest coverage ratio (ICR) and 30th September 2017 for the remaining requirements.
This means that the buy-to-let mortgage market is likely to see a significant increase in activity from lenders before the end of 2016 as they adjust their product ranges to reflect the new requirements for ICRs and assessing affordability. PTM is also expecting the market place to become more complex as lenders may devise a range of ICRs which can be applied depending on the applicant’s status such as being a lower rate tax payer or a limited company.
PTM has been in dialogue with several buy-to-let lenders recently and has asked the question about what to expect in terms of ICRs and affordability testing in 2017. Although some lenders are still in the process of deciding on the changes to their product offering, we are starting to get an impression of what products in the marketplace may look like by January next year.
It can be deduced from the PRA supervisory statement that a minimum recommended ICR would be 125% and 5.5% and some lenders may opt for this calculation across their product range. However, we have received indications that other lenders are planning on a 145% ICR for standard buy-to-let applications and a 125% ICR for limited company applications which would follow what some lenders, for example Foundation Home Loans, are already doing. Another lender suggested an ICR of 125% but at a higher interest rate of 6% or above for all landlords.
BM Solutions has already announced its plans for affordability testing and is providing intermediaries with rental income calculators for its buy-to-let products which also take into consideration the applicant’s tax band. It is retaining a minimum ICR of 125% for basic rate tax payers and adopting a tailored approach for higher and top rate payers. We may see other mainstream lenders following a similar path.
The PRA supervisory statement has indicated that lenders can also take into consideration other income besides rent when assessing affordability, however, it is unclear at the moment just how many lenders are likely to incorporate this into their lending criteria.
Currently there are just a few lenders that consider other sources to supplement rental income including Woolwich and Together. However, Bluestone Mortgages has taken a more unusual approach and has no minimum rental coverage requirement at all. Instead cases are underwritten individually and assessed on the overall affordability of the client.Interestingly, the PRA has stipulated that lenders should consider the affordability of buy-to-let clients over a period of five years, which means that fixed rates of five years or longer are effectively exempt from the new regulations relating to rental income coverage.
Unsurprisingly then, we are already seeing an increase in the number of five year fixed rates available in the marketplace. In fact, two of PTM’s top selling products in October and November were for five year fixed rates with Newcastle Building Society and Foundation Home Loans. With the combination of low interest rates and more achievable rental income requirements, five year fixed rates are likely to increase in popularity in 2017.
Tel: 029 2069 5480
*Denotes sponsored post. In the interests of transparency, Property Tribes will receive a small commission for any mortgage raised through PTM. This helps us maintain this site as a free to use community resource.SEE ALSO - Calculation to stack dealsUP NEXT - Section 24 - landlords must take action nowDON'T MISS - LTV's to decrease through higher stress testsNOW WATCH:
Fleet Mortgages has announced this morning that it has launched three new limited company products for borrowers who use corporate structures to purchase or remortgage.
According to the lender, the three new products are available up to 65% LTV and include a pay rate lifetime tracker at 4% - rent is calculated at 125% at 4%, as well as a two-year fix at 3.40% - with rent calculated at 125% at 5% and a five-year fix at 3.79% with rent again calculated at 125% at 5%.
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
Leeds Building Society has announced several criteria changes in response to the PRA’s new underwriting standards for buy-to-let mortgages.
According to Leeds, the changes, which come into effect on 1st January 2017, include an affordability stress test rate of 5.50% for purchase and capital raising remortgages, and 5.00% when there is no additional borrowing.
The income coverage ratio for buy-to-let and holiday let mortgages will go up from 125% to 140%, and the ICR will take into account mortgage interest tax relief.
An ICR assessment will not be required for existing Leeds Building Society BTL customers who have come to the end of their existing deal and there is no additional borrowing.
Leeds has also removed minimum income requirements, which were previously £25,000 pa or £40,000 for joint applicants.
Additionally, its entire range will be available up to 70% LTV.Source article
Do these new regulations apply to holiday let mortgages?
Not specifically in the regulations / guidance
but the general tightening of criteria will probably spill over for most lenders