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Are you ready for the PRA changes to Buy to Let Affordability?

12 December 2016

5.5% or product charging rate plus 2% if higher

Precise Mortgages will be removing ALL Buy to Let products on Wednesday 14 December to make way for their new product range launching Thursday 15 December which will now be assessed on this basis:

Interest Coverage Ratio (ICR): When assessing the affordability , your customers tax position has a significant impact on this calculation.

 

*Bespoke ICR – Their underwriting process will look at information you provide and will calculate an ICR based on your customers individual circumstances. In many cases this will result in a more favourable ICR when compared to generic ICRs.

Assessment Rate – They have also had to consider the impact of rising interest rates on the affordability. This will be driven by the type of product selected and will be based on:

TRACKER PRODUCTSSHORT TERM FIXED RATES5 YEAR+ FIXED RATESHigher of Pay Rate +2%, or revert rate +2%, minimum 5.5%
Higher of Pay Rate +2%, or revert +2%, minimum 5.5% Higher of Pay Rate, or revert rate +2%, minimum 5.5% Pay Rate. Additional underwriting checks may be required.

 

Paragon Mortgages make changes from 12 December.

Their new affordability criteria will vary depending on the tax status of your customer and the type of product they are applying for.

Minimum Affordability Standards:

TAX STATUSICRREFERENCE INTEREST RATE

Single self contained properties

HMO's and multi unit properties

Fixed Rate - Initial term of 5 years or more

All other mortgage products

Limited Company 125% 130%

Currently 4%, may vary with product charging rate

5.5% or product charging rate plus 2% if higher
Basic Rate 125% 130% Currently 4%, may vary with product charging rate 5.5% or product charging rate plus 2% if higher
Higher or Additional Rate 140% 145% Currently 4%, may vary with product charging rate 5.5% or product charging rate plus 2% if higher

 

Kent Reliance are still to reveal what their new underwriting approach will be however they have said that you will need to ensure that any submitted AIPs on the current BTL affordability criteria are at a status of ‘AIP Illustration Produced’ by 5pm Tuesday 20 December. All applications with fees must be submitted and at case status ‘Full Application Submitted’ by 12pm Friday 23 December.

All new applications submitted from 28 December will be underwritten on their new affordability criteria.

 

Prinicipality Building Society are changing the way they assess affordability on Buy to Let and Holiday Let mortgages from Monday 12 December.

The Rental Cover will increase from 125% to 145% and their affordability rate will be decreasing from 5.74% to 5.5%.

With all these changes in mind we have updated our BTL Rental Calculation Matrix and will continue to do so on a regular basis to keep you informed. You will also find the details of the PRA changes on our Regulatory Changes page on our website.

 


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