With recent changes in Taxation and comments from the PRA (Prudential Regulation Authority) many lenders have reconsidered their sensitivity calculations, with some now requiring up to 145% rental cover v payments at a sensitivity rate of c.5.5%. This clearly demonstrates that The Bank of England and the PRA have concerns over the Buy to Let market.
This market is typically funded on interest only mortgage on variable or short term fixed rates and therefore may be susceptible to changes in interest rates in the medium term. By introducing an affordability test constrains lenders in the value of the loan that a particular rental income can service. Therefore, recommending a higher or stricter test levels, should reduce the amount of debt in the market and help protect both lender and borrower in an economic downturn, or during a period of rising interest rates.
A potential solution?
Whilst we believe lenders should be prudent, they are not forced to follow the rates stated above. At Pinpoint finance we now have access to a product where the sensitivity calculation can be worked out against a reversion rate of 3.98%. This means that the product could be used to access a Loan to Value up to 80% which will broaden the appeal to the Buy to Let market. Please get in touch if you think this may of interest to you: firstname.lastname@example.org