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    Godiva (Coventry) Increases Rental Stress Rates

    Godiva Mortgages have joined the growing band of lenders in increasing the rental stress calculation based on either the pay rate or reference pay rate whichever is the higher.

    "Our rental calculation will increase from 125% to 140% of the monthly mortgage interest payment and will be calculated using the reference rate or product pay rate, whichever is higher. Our reference rates remain unchanged at 5.5%


      Chestertons raise a query as to whether the new Chancellor will make changes to the proposed tax increases

      Philip Hammond, Theresa May’s new Chancellor, should follow the Bank of England’s lead and act to shore up house prices and keep sales markets moving by slashing or temporarily suspending stamp duty.
      The Bank’s Governor Mark Carney has already lifted capital requirement restrictions on British banks in the wake of last month’s Brexit vote. The Monetary Policy Committee (MPC) may also cut interest rates to encourage growth and investment, so the onus is now on the Chancellor to follow suit, and property experts hope steps could be taken to ease “punishing” property taxation, by reducing the rate or offering a stamp duty “holiday” to incentivise buyers and investors and bolster confidence.
      Guy Gittins, Sales Director at Chestertons, says: “Our new Chancellor says he wants ‘rising prosperity for the great bulk of people in the UK’, but this will not be possible if home ownership remains an unaffordable dream for many, or if the sales market stalls and houses slip backwards, as RICS recently forecast looks likely to happen, especially in London.
      Gittins adds: “Mark Carney’s recent announcements contained good news for homeowners and buyers alike. By easing mortgage liquidity he is trying to keep the house market moving and prevent prices slumping. The MPC cutting the base rate of interest would also be a welcome move for mortgaged buyers and owners, and by reducing or temporarily removing punishingly high stamp duty the new Chancellor can ensure the housing market isn’t going to ‘seize up’, while at the same time making ownership more affordable for buyers, particularly in London.”
      Chestertons’ Head of Research Nick Barnes comments: “The past few Budget announcements have seen stamp duty changes that were supposed to ‘level the playing field’ by pricing out buy-to-let landlords and overseas investors. In reality the changes were little more than a series of heavy-handed attempt to cool the market, and the consequences were in fact the exact opposite of what was intended. Overseas buyers are in a strong position thanks to the cheap pound, while buy-to-let landlords snapped up homes in the most popular locations to beat April’s 3% stamp duty surcharge.
      Barnes continues: “In the post-Brexit environment the housing market mustn’t be allowed to stall and it’s clear Mr Carney recognises this. The ball is now in the Chancellor’s court and an overhaul of stamp duty must be a top priority. He should also scrap the planned withdrawal of landlords’ mortgage interest tax relief. Mr Carney sees the danger posed by buy-to-let landlords ‘abandoning’ the market; it’s to be hoped the new Chancellor will also recognise this and act accordingly.”



        A new facility to accommodate property to be let to an immediate member of the family

        I am not endorsing this lender but in view of the recent postings where property has been or needs to be let to an immediate member of the family and do not wish to break mortgage terms for such types I am detailing the following facility from the Market Harborough Building Society. To the best of my knowledge they deal almost exclusively through the intermediary market.

        Designed for applicants wishing to let to a close relative (i.e. spouse or civil partner, children, parents, brothers and sisters) or a borrower that intends to occupy the property at a future date.

        Pay rate 3.99% term discount with a maximum Loan-to-Value of 70%
        • Minimum loan £200,000
        • Maximum loan £1,500,000
        • Early Repayment Charge - 3% for 2years
        • Arrangement Fee - 1% of the loan amount
        • Rental income 125%, based on the pay rate


          Nice to see there is a lender willing to take this risk. It's a shame their arrangement fee, based on a minimum of £200,000, is a bit expensive.


            As a Gamekeeper turned poacher I am very aware of the practices of lenders; with mortgage rates coming down, lenders are in my considered opinion being greedy and charging such completion fees as are being seen.1% is amongst the lowest with many still charging between 1.5% and 2%, unfortunately very few operate a flat/ fixed fee which can make the product offering slightly more palatable.


              Nationwide makes significant changes to assessment of rental income in determining affordability for Home Owner Mortgages

              Whilst slightly off topic I thought I would share with you news about how the Nationwide change in rental assessment could impact on how much one could borrow for either a remortgage or homeowner mortgage.

              With immediate effect where an applicant has rental property Nationwide will check to see if the level of rent equals or exceeds 145% of the monthly mortgage payments, should that prove not to be the case the amount of shortfall will be used as an additional outgoings in order to determine the maximum loan which they would grant.

              As I have mentioned in previous postings changes in mortgage assessments particularly for Buy to Let but it seems a fair understanding that the applied level of caution could spill over and involve other lenders and particularly where applicants have Buy to Let properties in the background.


                Buy to Let Underwriting set for a Shakeup

                I would like to share an article which was issued as a briefing note from the Legal & General Mortgage Club to its members. I know I have been harping on about the imminent changes but this finally puts into context the implications for investors going forward.

                If you have any questions please let me know or speak with your own broker.

                " 03 October 2016
                The Prudential Regulation Authority (PRA) have agreed on a phased implementation process for the new BTL affordability assessment.

                In their supervisory statement issued this week, lenders will be required to implement the changes to interest coverage ratio tests and interest rate stress tests by 01 January 2017, with the remainder of the required changes by 30 September 2017.

                All lenders will be required to use an interest coverage ratio and/or an income affordability test (taking into account the borrowers personal income to support the mortgage payment, Wealth can also be included as a measure in this) when assessing a buy to let application.

                Borrower costs that will be taken into account by lenders include: management and letting fees, council tax, service charge, insurance, repairs, voids, utilities, gas and electrical certificates, licence fee, ground rent and any other costs associated with renting out the property.

                A minimum borrower interest rate of 5.5% must be used during the first five years of the buy to let mortgage.

                Pound-for-pound remortgaging landlords will not be subject to the rules. There are also some other exclusions including Consumer Buy to Let, Buy to Let mortgage contracts with less than 12 months and consent to let where an owner occupier on a residential mortgage applies to let their property temporarily.

                Portfolio Landlords with 4 or more mortgages buy to let properties will be subject to specialist underwriting standards.

                Lenders are prevented from using the SME supporting factor when conducting buy-to-let business.

                Some lenders have already made changes to their BTL calculations. To help you understand what lenders are currently offering we have produced a Matrix which will be updated over the coming months.

                So what does this actually mean to your BTL customers?

                Take a look at the example below.

                Based on the National Average BTL Loan Size of £150K (CML Jul16)

                How to work out the amount of Rental income that is required:

                Loan amount (£) /12 x min borrower interest rate (%) x min ICR threshold (%)

                E.g. £150,000/12 = £12,500 x 5% = £625.00 x 125% = £781.25 monthly rental required

                The table below shows the difference in the monthly rental income required, applying the increased interest cover.
                £150,000 5% 125% £781.25
                £150,000 5.5% 125% £859.37
                £150,000 5.5% 125% £996.87

                The above example does not include additional personal income.
                Cautionary note:
                Although the rental income should exceed the monthly interest only mortgage payments there are obviously going to be further costs over and above the deposit required such as maintenance, insurance, void periods, letting costs etc.


                  Very interesting and very helpful loanarranger.... looks like I'd better pull funds out of my unencumbered btl sooner than later. Basing it on 5.5% (rather than the current 4.99%) and the 145% TMW now use I won't even be able to get up to 65% LTV as I'd previously planned... more like 55%-60% at best. This really hits higher end properties hard. Mine is a 3 bed ex-council flat worth circa £240,000 and renting for £900-950. The stress tests even at this level make 75% equity release a pipe dream.


                    Hi JayDavys
                    I agree with your observations , maxing on the equity upto 75% is proving a challenge; today I did a portfolio analysis for a client and whilst there were funding opportunities using lower stress ages it was at the sacrifice of getting a lower rate of interest , in this case there was a lifetime tracker rate in the mid 3% range and which carried a rental stress of 125% at the paid rate.

                    The main lenders are quietly twisting the screw and consequently I agree that if one wants to release equity this is the best time to do it before stress rates and other affordability factors kickin during 2017.


                      Paragon Rental Stress Calculations

                      Paragon Mortgages have announced the following rental stress calculations , please note the stress calculations which apply to their Special Edition Products.

                      I do not endorse this lender but merely state the rental calculations in order that readers are aware of the varying rates which apply depending on the types of property/Incentive products etc.

                      INTEREST COVERAGE RATIO

                      For single self contained properties (individuals), the rental calculation is

                      125% @ 5.35% or charging rate if greater.

                      For single self contained properties (Limited companies), the rental calculation is

                      125% @ 5% or charging rate if greater.

                      For all HMO and Multi unit properties, the rental calculation is

                      130% @ 7% or charging rate if greater.

                      Limited Edition Products:

                      For all single self contained properties, the rental calculation is

                      125% @ 4% or charging rate if greater.

                      For all HMO and Multi unit properties, the rental calculation is

                      130% @ 4% or charging rate if greater.

                      ANY QUESTIONS?
                      the £150 application fee must be paid at the time of the online application submission.


                        Santander announces a change in its rental calculations.

                        Later this month Santander has announced that it is removing its tiered rental stress calculations and setting a higher across the board rental stress calculation, the ramifications are a significant reduction in potential borrowings. Given that this lender does not provide further borrowings for BtL nor permit the registration of second charges, its overall lending proposition makes it less appealing to potential borrowers.

                        What will this mean ?

                        Example current rate - 125% @ 5.0%
                        With £1,000pcm rental income a client can borrow £192,000.

                        New rate - 145% @ 5.50%
                        With £1,000pcm rental income a client can borrow £150,470.

                        This is a reduction of £41,530.


                          JonesLang Residential Report

                          I am attaching a link to an excellent report on the short term future of the residential market within the UK prepared by JonesLang , the link has been scanned for virus's.



                            Buy-to-Let purchases rise in Q3 despite SDLT increase

                            Something to muse over a cup of coffee.

                            25% of properties bought in the third quarter of 2016 were buy to let or second homes according to new figures from HM Customs & Excise.

                            The latest stamp duty land tax stats show that 56100 properties out of 235000 eligible to pay stamp duty in Q3 paid the extra 3% surcharge levied on second homes since April.

                            The figure of 235000 transactions eligible for SDLT in Q3 was 13% higher than in the previous quarter and 1% higher that Q3 2015.

                            The extra 3% tax on these properties has raised £670 million in the year so far: There have been around 86400 property sales since April eligible for the surcharge


                              BM Solutions make important announcement on rental stress criteria and other related matters

                              From Monday 21 November, BM Solutions will introduce changes to the rental income calculation it requires to support buy to let applications. This is in response to the upcoming changes to tax relief on residential investment property.

                              The current 125% rental cover ratio on BTL applications will remain unchanged for basic rate tax payers. For higher and additional rate clients, you will be able to obtain the rental income requirement tailored to the client’s individual circumstances.

                              All applicants will be assessed on an individual basis to ensure that rental income includes the additional tax the landlord may be liable for.

                              Our online system will use the data capture to calculate the maximum loan available for each application and present a decision in principle in the same way as you receive this currently.

                              ● On remortgage applications if the maximum loan amount we can provide is lower than the remortgage or debt consolidation amount requested, the system will no longer decline the application and will display the maximum loan we could offer the client.

                              Other changes
                              ● From 21 November we will no longer operate a tiered stress rate structure and all buy to let applications, including those on 5 year fixed rate products will be assessed using a notional/stress rate of 5.5%
                              ● The maximum age at the end of the mortgage term is being extended to the age of 80
                              ● All applicants must apply by their 75th birthday, adhering to our minimum term of 5 years
                              ● Clients wishing to extend their term as part of a product transfer can do so within our online system.

                              Any standalone changes to their term should follow the existing process via the mortgage servicing team.
                              In addition, all existing BTL clients will be mailed to inform them of the impending tax changes to allow them to take appropriate action in seeking independent tax advice. The mailing commenced mid October and will run into next year.


                                Aldermore Commercial Stress Calculations for Multi Unit and HMO's

                                Please note that Commercial part of Aldermore use a somewhat draconian rental stress calculation for HMO's and Multi Unit properties : depending on which product is selected for variable rated products or Fixed Rates the calculation is an eye watering 185% at a stress rate from 5.28% to 6.28% with Completions fees of between 1.75% and 2.5%


                                Latest Activity


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                                • Reply to Anyone Buying At Present?
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                                • Reply to Anyone Buying At Present?
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                                • Reply to Mortgages - Buy 2 Let v. Vacation Rentals
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                                  Don't forget that London already restricts holiday letting to 90 days a year (without planning consent) and it is likely other areas will follow with similar restrictions.
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