Getting a buy-to-let mortgage has got a whole lot tougher due to new tougher lending criteria.
From the 1st January 2017, new regulation from the Bank of England will affect personal and corporate lending. Stress tests to new borrowing will be applied, taking into account future interest rate rises plus stressing more stringent Interest Cover Ratios (ICR).
Exceptions:
- Holiday lets
- Remortgaging (not where capital is raised)
When underwriting new loans, an affordability tests will be to ensure that rent covers mortgage interest and business costs. The industry standard ICR of 125% remains unchanged but many lenders have already increased their ICR level.
Under the interest rate stress test, lenders will have to assume the higher of 2% in buy to let mortgage rates, or a rate of 5.5% over the first five years of the mortgage.
Also, portfolio wide risk assessments for landlords with four or more property will be applied from Sept 2017.
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