Lender eases rules for landlords

December 10, 2018

From The Sunday Times 9th December 2018

Buy-to-let landlords have been offered an easier route to securing a mortgage.

The Mortgage Works, a specialist lender, has softened the financial tests it applies to assess whether landlords are capable of meeting repayments even if interest rates go up.

Under these tests, borrowers have to show the rental income on the property will be at least 125% of the mortgage costs, or 145% for higher earners.

They also need to show they will be able to afford the repayments should rates increase.

Typically, lenders use 5.5% for this so-called stress rate. However, the Mortgage Works — part of Nationwide building society — has cut the stress rates on its longer-term fixed-rate deals.

For borrowers with a minimum deposit of 25%, the stress rate on a five-year fix will fall from 4.99% to 4.5%. On 10-year deals with a minimum deposit of 65%, it will drop from 4.99% to 4% or the mortgage rate plus 0.75 points, whichever is higher.

David Hollingworth, a director of the mortgage broker London & Country, said: “This is a logical move. Where landlords are locking in for a longer period, they should not be subject to the same expectations around rising rates because they have removed that risk by fixing.”

The Mortgage Works has also launched a range of 10-year loans. Borrowers with a 35% deposit can fix for a decade at an interest rate of 2.74% — or 3.24% with no early repayment charges after five years. Both deals have fees of £1,995.

The looser lending criteria will be welcomed by landlords, whose returns have declined in recent years because of regulatory and tax reforms.

Hollingworth sounded a warning, though: “Landlords should still be sure to select a product because it is the right choice for their situation, not just because it allows them to borrow more.”

According to the trade body UK Finance, 5,200 new buy-to-let mortgages were taken out in September — nearly a fifth lower than the same month last year. For buy-to-let remortgages, the number of completions was 12,300, down 0.8% from a year ago.