This morning NatWest Bank have announced that they will be making some major new changes to their Buy to Let stress tests. Meaning that it will become more difficult for Buy to Let landlords to get the level of lending that they need in order to finance their properties, and make a worthwhile profit on their investments. NatWest are not the only lender to make make major changes to their Buy to Let affordability testing either!
Buy to Let Stress Tests and Other Buy to Let Criteria
In order for someone to get Buy to Let finance, they generally need to meet several pieces of eligibility criteria. Firstly, with most lenders you need to already be an owner occupier of a residential property. Some lenders will allow you to be a first time buyer and a first time landlord, but this is very rare nowadays. You will also generally need at least 20-25% deposit in order to get a Buy to Let mortgage. This is different from a residential mortgage where you can potentially put down as little as 5% deposit. Finally, you will need to meet the lender’s Buy to Let affordability and stress tests.
These affordability and stress tests are designed to do two things. Firstly, like any other regular mortgage, the lender wants to ensure that you can afford to pay the mortgage back per month and aren’t at risk of borrowing too much for you income level. Secondly, with Buy to Let properties, the lender wants to make sure that the property will earn enough money from the rental income. In the past, lenders would require that your application meets their interest cover stress test (the lender will check that you can still afford to pay the mortgage if your rate goes up significantly), and also a rental income cover rate that ensures that the rent you receive or will receive covers the monthly mortgage payment and then some extra to make a Buy to Let profit.
For a long time, these Buy to Let stress tests remained more or less the same for everyone and didn’t change. However, since the economic crisis and since lenders have started making major changes to affordability and interest rates in the wake of this, many lenders have change their stress tests. NatWest and TMW being the most recent ones.
NatWest Buy to Let Criteria
In a message to brokers this morning, NatWest made the following announcement:
Effective Tuesday 13th of June 2023, we’re changing our Buy to Let stress rates as follows within our Decision in Principle (DIP) and Full Mortgage Application (FMA):
- 2 year fixed: Increase stress rate from 6.7% to 8.10%
- 5 year fixed: Increase stress rate from 6% to 6.89%
- Like for like remortgage: Increase stress rate from 6% to 7.54%
These new changes from NatWest means that instead of Buy to Let mortgage applications being tested at an interest rate of 6%, many products will be bumped up to an extra 1.5% to 2.5%. What does this mean for borrowers exactly? It means that landlords will most likely be offered lower loans than they previously were, or prove that they can counter balance the increased stress rates with larger deposits or more income or increased rent. Because of this recent change, NatWest have also suspended all of their Buy to Let calculators online while they make the necessary changes to reflect this criteria update.
TMW Buy to Let Criteria
Unlike NatWest, TMW (The buy to let arm of Nationwide building society) did not make brokers aware when they made major changes to their Buy to Let affordability tests. Simply changing their calculators to reflect the new changes, leaving many potential borrowers struggling to get the lending that they required. Here is a brief breakdown of what TMW have changed:
Generally when applying for a Buy to Let loan, a lender will need your expected or actual rental income to meet between 125% and 145% of your monthly mortgage payment to ensure that your mortgage will be covered with a profit being made too. However, TMW have changed these rent stress tests to 130% and 165% now. This means that potential borrowers will now need their expected rent to cover at least 130% and up to 165% of their monthly mortgage payment in order to even be considered for a buy to let loan. Leaving lots of landlords with two options, increase their rent significantly and risk losing loyal tenants or settle for a much lower mortgage amount than they hoped for.
Buy to Let Mortgage Broker
Jade Pinkerton, Senior Mortgage and Protection advisor at Oportfolio Mortgages shares her thoughts on these recent changes to Buy to Let stress tests:
“A few years ago, the stress test on Buy to Let purchases and remortgages sat at around 4.5% or 5.5%. These recent changes mean that this has now pretty much doubled for borrowers! The rent needed to get the same level of loan is also much higher than it once was, and rates are higher too. Although this is the same for all types of mortgage at the moment. So on the surface it is bad news for Buy to Let owners and landlords.
Luckily as we experienced brokers with access to the whole mortgage market, we at Oportfolio have plenty of strategies that we can use and exclusive products and rates that aren’t accessible by every broker in the country. Some lenders are also more generous than others, so having access to over 90 different bank and building societies really makes a difference for us and our clients.
One example of how we can potentially get round stress rate issues is that some lenders will consider your earned income as well as the rent you will receive, so they will potentially lend much more money this way. For high earners such as landlords in London where our offices are based, it can often make those higher loan sizes achievable. It is all about knowing where to place a case and who is most suitable for each client’s unique situation, and we pride ourselves on being the best at this.”
Speak to a Buy to Let Broker
If you are looking to purchase a buy to let property or remortgage a buy to let property you already own, don’t go it alone. Speak to an expert buy to let mortgage professional at Oportfolio mortgages today. We are here to help.