Tougher stress tests for buy-to-let landlords

Tougher stress tests for buy-to-let landlords

The Mortgage Works is the latest lender to announce that it is increasing its rental stress rate for buy-to-let landlords as regulators look to cool what it perceives to be aggressive buy-to-let lending practices.

The crackdown by the Prudential Regulation Authority comes into force next month and will see lenders conduct tougher 'stress tests' to ensure borrowers can repay their mortgages if interest rates rose to 5.5%.

Consequently, The Mortgage Works, from 19 December, will implement a stress rate for buy-to-let landlords at 5.5%, rather than the existing 4.99%, for all new buy-to-let applications.

However, the 4.99% charge will still apply to fixed rate product terms of more than five years, or for remortgages of up to 65% loan-to-value.

"The Mortgage Works is making these changes to comply with the requirements set out by the PRA in its recent Supervisory Statement, to be implemented by 1 January 2017," said the firm's managing director Paul Wootton.

Over the last few months we have seen several lenders increase stress tests for personal borrowers from 125% to 145%, whilst maintaining stress rates at 125% for those borrowing via a corporate vehicle, which partly explains why a growing number of buy-to-let landlords are now making mortgage applications via limited companies.

Research by Kent Reliance shows that there have already been more than 100,000 limited company loans issued in the first nine months of the year, double the total amount in the whole of 2015, and many analysts believe that demand for this type of arrangement is likely to intensify in 2017.

Kent Reliance estimates limited company lending in 2016 could total 143,000 for the year as a whole, rising to 163,000 in 2017.

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