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Buy to Let Update.

04 January 2017

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:

Dudley Building Society

The amount earned in rental income must cover at least 140% of the interest only mortgage payment, calculated in accordance with the following:

  • At pay-rate, for fixed rate products of 5 or more years duration
  • At pay-rate plus 2%, for all discount or variable rate for term products
  • At revert rate, currently 5.49%, plus 2% for all other products

For products that are not fixed for 5 years or more, a floor of 5.5% will be applied.

Where the rental cover calculations are not met, the Society will consider lending where it can be adequately demonstrated that the strength of borrowers’ covenant is sufficient to create an acceptable lending risk. In order to evidence this, a budget planner will need to be provided with every case.

To make the process simpler, The Dudley Building Society will be launching a BTL Calculator. This will help you identify if your application meets the required rental coverage.

PIPELINE

They will honour any cases in their current Decision in Principle and application pipeline and assess these cases using the current criteria, but any case that has successfully been accepted at DIP stage, should be submitted within 2 weeks of acceptance, no later than the 13th January 2017

Any significant change in the proposition would have to meet the new criteria assessment.

 

Saffron Building Society

To comply with the new regulations with effect from the 1st January 2017, They will be introducing some changes to the way they assess BTL applications. These can be summarised as follows:

  • REFER decisions; From the 1st January 2017, all BTL DIP’s that are submitted and are not immediately declined, will receive either an automatic ACCEPT decision or a REFER decision. However ALL DIPS (including ACCEPT decisions) will be manually referred to the underwriters for formal review. This will enable them to assess each case on the new rental coverage rules until their systems are updated. An email will be sent within 24 hours confirming if they can consider the case.
  • BTL Rental Calculation; They will be applying the following minimum BTL rental calculation; 140% of pay rate stressed at 2%.

There are no changes to their BTL lending criteria.

BTL fully packaged mortgage applications which have been assessed by underwriters by close of business on the 31st December 2016 will be considered on the current affordability assessment requirements.


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