In another tough blow to UK landlords, The Mortgage Works (TMW) has announced an adjustment to its stress rate for buy-to-let (BTL) portfolio landlords. For buy-to-let mortgage applications, a lender will normally stress test the interest of the loan and the projected rental income, to make sure that the lending is as risk free as possible. As of late, a tightening of rules in buy-to-let criteria has meant that getting a loan has become more and more difficult. The new change from TMW, which sees the stress rate rise from 4.50% to 5.25%, marks a significant shift in the lending for property investors in an already struggling buy-to-let market.
Increased Stress Test Rate For Portfolio Landlords
The Mortgage Works, the buy-to-let only arm of Nationwide Building Society, is a prominent player in the buy-to-let mortgage market, offering a range of products for various portfolio sizes. From one or two properties to multiple property investments. The recent change to the stress rate announced has generated both intrigue and discussion among landlords and industry experts. Under the new guidelines from TMW, all new mortgage applications submitted must undergo a meticulous assessment process to decide whether borrowers can comfortably cover their monthly mortgage interest payments. Additionally, the lender will also evaluate existing portfolio properties to ensure that the aggregate loan-to-value (LTV) and interest cover ratio remain sustainable with the new purchase.
What Do Portfolio Buy-to-Let Landlords Need To Know?
As well as keeping the new stress rate tests in mind, potential borrowers should be aware that TMW offers a variety of products that cater to different portfolio sizes. That means that preferential rates and products could be available to you, depending on how many properties you own and the overall value. For a full and comprehensive understanding of these products, you should always seek guidance from a qualified mortgage broker like Oportfolio. As buy-to-let mortgage experts with access to over 90 different lenders, our job is to help you to find the most competitive lender and product for your own circumstances. So give our team a call if you are a portfolio landlord looking to get a new mortgage.
What Are The Calculations For Portfolio Mortgages From TMW?
The adjusted rental calculations and maximum loan-to-values for a client’s portfolio are as follows:
- Up to 10 Mortgaged BTL Properties at Completion: Maximum loan-to-value is set at 75% i.e. 25% deposit or equity. The stress rate has been increased to 5.25%, and the interest cover ratio remains at 145%.
- 11 or More Mortgaged BTL Properties at Completion: For portfolios with 11 or more properties, the maximum loan-to-value stands at 65% i.e. 35% deposit or equity. Similar to the previous category, the stress rate has been raised to 5.25%, with the interest cover ratio remaining at 145%.
For investors whose total BTL lending with TMW or the Nationwide Group exceeds £1 million upon completion, a stress rate of 5.25% will be used for assessing both existing and proposed BTL properties. Also, an overarching maximum loan-to-value of 65% will apply, irrespective of the number of properties within the portfolio.
Why Are Lenders Increasing Stress Rates On Buy-to-Let Mortgages?
This change to TMW’s stress rate comes in response to the evolving economic landscape and regulatory requirements. The decision reflects the lender’s dedication to ensuring that borrowers can manage potential interest rate rises and maintain the health of their property investments. A lenders goal is to make money with as little risk as possible. In the buy-to-let market, there is likely to be a lot of renters unable to keep up with paying their rent and a lot of landlords unable to cover their mortgage without full paying tenants. That is why lenders are overinflating their stress rate tests, to ensure that if anything like that does happen, a landlord can still keep paying the mortgage.
Industry experts are anticipating that this adjustment from TMW could actually influence the broader buy-to-let lending sector, prompting other lenders to re-look at their own stress testing criteria and make similar increases. However, only time will tell.
Speak To a Portfolio Landlord Expert
If you are a portfolio landlord and are looking for a new mortgage, you must speak with a buy-to-let mortgage broker. Going it alone in this market is not wise. In order to get the most competitive and most beneficial mortgage for your properties, you need the help and guidance of a mortgage expert. Send us a message or give our team of brokers a call today to have an initial mortgage consultation chat today. We are here to help.