Welcome back, I hope you had a relaxing break and are looking forward to 2017. I would like to take this opportunity to wish you and your families a very Happy New Year. Now let’s get down to business, in particular with a focus on changes going on in the BTL market.
As you will no doubt be aware, the PRA have set out their new rules for standardising Buy to Let criteria, of which the first part around interest coverage ratios and affordability came into play on 1st January. PS28/16 stated that lenders must change their interest coverage ratio (ICR) to a standard 5.5% for all products with less than a five-year term. You may have seen that most Lenders in the Buy to Let space have amended their affordability stress rates in preparation for this implementation. The second part of the paper involves changes to what is classed as a professional landlord and the stress testing of properties in the background for clients who have more than 4. This will need to be implemented by 30th September 2017.
Although September is still 9 months away, Lenders will be looking at their Buy to Let books from now and how they are going to interpret this policy. They will be making any changes to their Professional Landlord criteria and underwriting prior to September to allow for pipeline business to be processed. We cannot know what those policies will look like yet, but we know Lenders are likely to have to stress test the whole portfolio to comply with the PRA requirements. It might be prudent that you start to consider your existing client bank, particularly those with 4 or more properties, and whether re-mortgaging and pulling out equity now would be an easier option than waiting until the changes have been implemented (which could potentially, make it harder for a client to re-mortgage later in 2017).
As a continuation to the messages given out in our workshops in 2016 and the sessions Christine Newell ran around the changes to BTL criteria, we have collated a useful table of all the Lender changes to rental stress calculations. Please see this sheet attached or click the link below to view online. This will allow you to see at a glance which Lenders are applying which stress rate, and where there are any anomalies that you need to look out for - such as straight product transfers or re-mortgaging with no extra borrowing.