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    BM Major changes on affordability

    Further to my postings on 16th November , a missive has been sent to brokers regarding loan assessment , unfortunately the accompanying document is for Intermediaries suitably qualified and given the nature of the document cannot be officially communicated to the general public

    As part of the Tax changes being introduced, BM Solutions have made some changes to the One Minute Mortgage application system and some of the income data capture requirements.

    Income is used in the lending decision and it’s important that it’s keyed accurately. Please see the link below; this guide will help you understand how to key income from self-employment, employment retired/pension income and rent.

    Rental cover ratios are built into BTL calculations to allow a buffer for rental voids, property costs, management costs, and importantly, tax liabilities.

    BM offer different rental cover ratios tailored to each individual customer’s tax position.

    Please ensure you use the Full Rental Income Calculator before submitting your decision in principle

    The nuts and bolts of the missive is that every penny earned from employment/self employment , coupled with income and expenditure of property related income has to be taken into account so the days of just declaring a minimum income of £x and the rent is sufficient is now going to be a thing of the past without the minutae of income /expenditure in the same way as that which applies for residential homeowner mortgages being declared.


      There has been a number of lenders who have announced that when applying the increased rental stress calculations , the potential amount which can be borrowed will fall way below previous expectations, as at result some of the lenders have chosen to allow a "topping up" measure by using residual income from employment/self employment to allow funding to be approved, this however will involve assessment of income and expenditure. Whilst for some this may appear intrusive it will permit borrowing to be achieved when otherwise the only option would be to increase the deposit or remortgage for a lower figure.


        Godiva ( Coventry BS ) Announce changes to rental stress calculations

        Godiva has joined the growing ranks of lenders who are making changes to the rental stress calculations, importantly it is following the trend of others by offering lower stress calculations for borrowings on initial 5 year Fixed Rate products.

        "In line with the Prudential Regulation Authority’s BTL underwriting standards, from 15 December 2016 the Coventry for intermediaries is increasing its Buy to Let Reference Rate to 5.5% on loans with benefit periods of less than 5 years. The reference rate for 5 year fixed rates remains unchanged at 5.0% as does our ICR at 140%."


          Extract from Mail online Money Article

          Not sure if anyone has read the full article but an extract bears out the rumours circulating within the lending industry.

          Two of the lenders are those known to many as being providers of BtL finance almost without any significant status underwriting being done, if they do remain in play during 2017 one can take it that their underwriting will be in complete reversal to how they previously assessed applications and may probably start by maxing the Loan to Value.

          My professional advice is that if a landlord is considering remortgaging eithe on a £ for £ basis or to release available equity they should consult with their brokers as to what are the best options available as funding is guaranteed to get more difficult in 2017.


            Apologies too quick on the send button before I returned to doing the Xmas tree.

            "There is more to come for the buy-to-let sector next year. The Bank of England is bringing in tougher rules for buy-to-let lenders which are likely to make it harder to get a mortgage from next year while the Financial Policy Committee has also just been handed powers to cap buy-to-let lending if it thinks the market is overheating.

            Indeed, earlier this week the Financial Times reported that rumours had surfaced that the PRA has told three lenders they have enough buy-to-let loans and should think twice before extending finance to landlords in future. "


              Goldman Sachs forecasts US interest rates to rise 4 times before end of next year , should we expect the UK interest rates to follow ?

              " Timothy Moe, chief Asia-Pacific equity strategist at Goldman Sachs, said that the market has rising expectation for the growth in the U.S with the stimulus policies of President-elect Donald Trump. Inflation and treasury yield rate are expected to see a rise. It is anticipated that the Federal Reserve will increase the interest rate once this year and raise the interest rate by three times next year, with 25 bps each " .


                Hi Gordon

                Firstly thanks for posting a response to my updating on Mortgage News.

                You make very valid comments regarding rate increases in the US , however their own financial dynamics are at variance with those affecting the UK with a booming economy and reduced unemployment, even house prices which have been pretty dormant for some considerable time are now increasing across the entire country: I accept that interest rates will increase 17/18 due to the expected increase of inflation however the overall economy in my honest opinion could not handle any reflective substantial increases in rates without having a serious affect on the economy , housing etc. My prediction is that Bank Base will possibly reach 2% towards the middle of 2018 , unfortunately I dont gamble and I am certainly not George Soros.


                  Virgin Money make changes to Buy to Let Mortgages

                  Virgin Money is making changes to their Buy to Let lending policy which will take effect today, *Monday 5 December.*

                  Interest coverage ratio*
                  Their interest coverage ratio will increase from 125% to 145%.
                  Interest rate stress*
                  They will change their interest rate stress from Buy to Let Variable Rate +1% (currently 5.74%) to 5.50% for all tracker and fixed rate products of less than five years.
                  The stress rate for five year fixed rate products will be the higher of the product rate or their Buy to Let Variable Rate (currently 4.74%).
                  Maximum mortgaged properties
                  They will no longer accept applications from customers with more than 11 mortgaged properties in total in their portfolio.*
                  The maximum portfolio limit of £2 million and/or four properties with Virgin Money will remain unchanged.*


                    Just like a London Bus , wait 30 minutes and two come together

                    Announcement from The Mortgage Works indicates that the changes are gaining apace.

                    "We're amending our BTL rental stress rate

                    From Monday 19 December, we'll be making changes to our Buy to Let rental stress rate for new mortgage applications.

                    A stress rate of 5.50% (or pay rate +2% if higher) will now apply on all applications, unless:


                    The product term is fixed for 5 or more years or;


                    The application is a remortgage of up to 65% LTV without capital raising

                    The current stress rate of 4.99% will apply in the two scenarios above. For applications where overall Buy to Let lending with the Nationwide Group exceeds £1m, a stress rate of 5.99% will remain in place.

                    There won't be any impact as a result of these changes for customers seeking a product switch or transfer of equity, providing no additional borrowing is involved."


                      Paragon makes further changes to Rental stressed criteria

                      Further to my note on Paragon and its stance on rental stress criteria , they have announced further changes following the Prudential Regulatory Authority proposals.

                      Paragon is making changes to its affordability assessment for buy-to-let mortgages in response to the PRA’s new underwriting standards which will be implemented in April 2017.

                      Paragon is adopting a graduated interest coverage ratio, tailored to the tax status of the individual landlord.

                      As a result, the ICR will not change for landlords who are unaffected by the tax changes. Landlords paying basic rate income tax and corporate landlords will continue to be assessed at an ICR of 125%. Where it is identified that a landlord will be paying a higher rate of tax, a higher ICR of 140% will be used when assessing affordability.

                      The revised approach to affordability also includes changes to the reference interest rate used in the affordability calculation. For all products other than longer term fixed rates, the reference or stressed rate will be set at 2% above product rate or 5.5%, whichever is higher. For longer term fixed rates the current stressed rate is 4% or the product rate if higher.
                      John Heron, Director of Mortgages, said: “Government policy towards the Private Rented Sector will increase costs for landlords and it is clear that this will need to be reflected in lender affordability assessments.

                      “The PRA’s supervisory statement released in September this year is helpful in ensuring that lenders approach this in a consistent fashion.
                      “The changes that we’re announcing today are designed to tailor affordability to each landlord’s individual circumstances, whilst keeping the application process straightforward for brokers and their customers.”


                        Leeds BS make changes to their rental stress calculations

                        Leeds Building has announced a number of criteria changes in response to the PRA’s new underwriting standards for buy-to-let mortgages.

                        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.


                          I think that its highly unlikely that UK rates will go up any time soon for many reasons. However, the way I see it the driver of higher borrowing costs will be due to both US & UK governments issuing more bonds & guilts - i.e. in line with Trump's and Hammond's recent announcements. They sort of shoot themselves in the foot by announcing this, but I gather there was no other choice. The yields on the bonds have already increased over the past 3 weeks from all time low. The likes of Barclay's, Lloyds, HSBC's, etc get their funding from the wholesale markets, although long dated, this will trickle down into higher mortgage costs to catch up with the spread vs UK yields. Even if the bank's base rate stays unchanged, I believe we'll see rates pickup from the current low's as soon as Q1 next year .... wish I could lock all my mortgages into 5yr fixes, early repayment charges bite.


                            First may I thank you for your posting, always good to get Forum readers making comments on my postings under Mortgage News.

                            I believe your last sentence reflects the views of many , the costs of early redemption penalties could indeed make it prohibitive to switch thereby hedging against the potential risk of higher funding costs and in many instances when the time does come toremortgage the criteria for borrowing will have shifted significantly resulting in a double whammy. Certainly not an ideal situation for all affected.


                              Thank you loanarranger for your timely updates on mortgage market developments. I greatly appreciate your posts and insights, which I think not all members value no pay attention to. Looking forward to further updates !


                                Going by the stats on the number of people viewing Loanarrangers thread, I would imagine there is a huge amount of Landlords that actually value his updates. I know I do!


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