28 December 2016
As you will be aware, from 1 January 2017, The Prudential Regulation Authority (PRA) will require the changes to interest coverage ratio tests and interest rate stress tests to be in place. Lenders have been busy implementing these changes and all the details have been updated on our Buy to Let Matrix which can be found here.
Here are a few more of the changes received this week:
The Melton currently offers 4 BTL products - Business BTL, Consumer BTL, Family BTL and Holiday BTL. These products will remain unchanged, however changes to their criteria are as below:
MBS have also made a few changes to their criteria in which also comes in to effect on 1st January 2017, please as below:
The way Aldermore calculate affordability on BTL cases is changing; from 23 December 2016 all cases submitted will be subject to their new underwriting standards and affordability rules.
Key changes are detailed below
1) Their new Interest Coverage Ratios (ICRs) with effect from 23 December are:
Minimum ICR (including surplus personal income)
minimum icr (excluding surplus personal income)
|Minimum ICR (including surplus personal income)||Minimum ICR (excluding surplus personal income)|
Loans on capital repayment will need to meet the ICR based on the interest only cost. The rental income alone must be sufficient to cover at least 100% of the stressed mortgage payment.
If the required ICR is not achieved, personal surplus disposable income can be used to meet the shortfall, subject to the minimum ICR shown in the table above.
2) All applications will be stress tested against the following interest rates with effect from 23 December:
|Product type||Stressed interest rate|
|Term Variable rate||Higher of 1) pay rate + 2%, or 2) 5.5%|
|Fixed rate <5 years|
|Fixed rate 5+ years||Higher of 1) pay rate, or 2) 5.5%|
Please note there will be no offer extensions on cases underwritten against our existing underwriting standards and affordability rules (pre 23 December 2016), therefore all offers must complete by 30 April 2017, otherwise they will need to be re-submitted and will be subject to their new underwriting standards and affordability rules. The only exception to this is for New Build cases which must complete by 30 June 2017.
With immediate effect the society will assess BTL affordability on a minimum rental cover of 145% of pay rate or lesser of 5.5%. It will be possible to use excess disposable income to justify a shortfall in rental. Affordability of existing commitments to be confirmed via gross income multiplier of 4 times existing annual expenditure on mortgages, loans, maintenance and school fees.