BTL Stress Tests
Discussion
I was under the impression that re-mortgages were exempt from the stress tests to avoid people becoming "mortgage prisoners".
Just spoken to my broker and he says that the stress tests apply regardless of whether it's a re-mortgage. Well I'm now on the brink of becoming a mortgage prisoner unless I drop a load of cash to bring down the borrowing amount.
Does anyone know anything about this?
TIA.
Just spoken to my broker and he says that the stress tests apply regardless of whether it's a re-mortgage. Well I'm now on the brink of becoming a mortgage prisoner unless I drop a load of cash to bring down the borrowing amount.
Does anyone know anything about this?
TIA.
I'd normally have associated a demand to reduce the loan with "marking to market" following a perception that your LTV is above the threshold. And that, in turn, as a consequence of a perception (or certainty via revaluation survey) of a drop in values of the assets under security.
I'd link "stress test" more with affordability, e.g.. would you still be able to afford the payments if interest rate was, say 9%?
Certainly a stress test (at 9%) was applied to me in 2009 and again in 2011 when RBS decided they'd renege on their agreement and
renege again on their 'adjusted agreement' (if you can call RBS doing what it pleased an "agreement"). Those 'adjustments' were termed 'refinancing' which is, I suppose, the same as remortgaging.
I'd link "stress test" more with affordability, e.g.. would you still be able to afford the payments if interest rate was, say 9%?
Certainly a stress test (at 9%) was applied to me in 2009 and again in 2011 when RBS decided they'd renege on their agreement and
renege again on their 'adjusted agreement' (if you can call RBS doing what it pleased an "agreement"). Those 'adjustments' were termed 'refinancing' which is, I suppose, the same as remortgaging.
drainbrain said:
I'd normally have associated a demand to reduce the loan etc
This isn't the case, he's trying to remortgage and it looks like the property no longer passes the newer stress tests (yield etc) and so he'll either be stuck on a high SVR or have to put some money in to reduce the LTV. Reducing the loan amount is the only way I can pass the stress test. Current LTV is 65%, hardly highly leveraged (IMO).
They calculate 145% of the repayment based on a 5.5% interest rate, if your rental income doesn't cover that amount then it's tough.
Obviously reducing the loan amount means that the stressed payment amount is reduced and therefore I would meet the criteria.
I don't object to the stress tests in general, but if it applies to re-mortgages then a lot of people are going to be in trouble.
They calculate 145% of the repayment based on a 5.5% interest rate, if your rental income doesn't cover that amount then it's tough.
Obviously reducing the loan amount means that the stressed payment amount is reduced and therefore I would meet the criteria.
I don't object to the stress tests in general, but if it applies to re-mortgages then a lot of people are going to be in trouble.
terrydacktal said:
Why wouldn't it apply to remortgages? What makes them any different to a new mortgage?
Because it will leave lots of people in an s
tty situation. If it's for the initial purchase then the buyer could just pull out, if you already own the place then you are either stuck on the SVR or having to put in a load of cash.Even the PRA realised that:
http://www.bankofengland.co.uk/pra/Documents/publi...
Page 6:
"To avoid existing borrowers being adversely affected when re-mortgaging, the expectations referred to in paragraph 1.2(a) do not apply to buy-to-let remortgages where there is no additional borrowing beyond the amount currently outstanding under the existing buy-to-let contract to the firm or to a different firm."
It seems most lenders have ignored this guidance.
XJ75 said:
Because it will leave lots of people in an stty situation. If it's for the initial purchase then the buyer could just pull out, if you already own the place then you are either stuck on the SVR or having to put in a load of cash.
Even the PRA realised that:
http://www.bankofengland.co.uk/pra/Documents/publi...
Page 6:
"To avoid existing borrowers being adversely affected when re-mortgaging, the expectations referred to in paragraph 1.2(a) do not apply to buy-to-let remortgages where there is no additional borrowing beyond the amount currently outstanding under the existing buy-to-let contract to the firm or to a different firm."
It seems most lenders have ignored this guidance.
Find a better Broker tty situation. If it's for the initial purchase then the buyer could just pull out, if you already own the place then you are either stuck on the SVR or having to put in a load of cash.Even the PRA realised that:
http://www.bankofengland.co.uk/pra/Documents/publi...
Page 6:
"To avoid existing borrowers being adversely affected when re-mortgaging, the expectations referred to in paragraph 1.2(a) do not apply to buy-to-let remortgages where there is no additional borrowing beyond the amount currently outstanding under the existing buy-to-let contract to the firm or to a different firm."
It seems most lenders have ignored this guidance.
XJ75 said:
Because it will leave lots of people in an stty situation. If it's for the initial purchase then the buyer could just pull out, if you already own the place then you are either stuck on the SVR or having to put in a load of cash.
That's the reality of the mortgage they took out though, and agreed to those terms. Everyone looks at the introductory fix/discounted variable as the headline rate, when you really need to focus on the SVR that it reverts to. Even my mortgage broker didn't really make much mention of the SVR or length of the fix. His recommendation was to take the shortest fix with the lowest fixed rate, and said it'll be a trivial matter to get a new fix when the initial one's up. That's a massive assumption that the economics will stay the same as they have during recent years. If interest rates go up a bit (as is now being suggested will be coming soon), all the cheap fixed rates will dry up. A lot of people will be stuck on the SVR unless they are in a position to remortgage. And since the affordability tests are more stringent than a lot of people had to go through last time, they could find themselves stuck. Ironically, a lot of those people are the same ones that couldn't see any point in overpaying their mortgage because rates are so low... tty situation. If it's for the initial purchase then the buyer could just pull out, if you already own the place then you are either stuck on the SVR or having to put in a load of cash.It's the same for BTL and homeowner mortgages.
mjb1 said:
That's the reality of the mortgage they took out though, and agreed to those terms. Everyone looks at the introductory fix/discounted variable as the headline rate, when you really need to focus on the SVR that it reverts to. Even my mortgage broker didn't really make much mention of the SVR or length of the fix. His recommendation was to take the shortest fix with the lowest fixed rate, and said it'll be a trivial matter to get a new fix when the initial one's up. That's a massive assumption that the economics will stay the same as they have during recent years. If interest rates go up a bit (as is now being suggested will be coming soon), all the cheap fixed rates will dry up. A lot of people will be stuck on the SVR unless they are in a position to remortgage. And since the affordability tests are more stringent than a lot of people had to go through last time, they could find themselves stuck. Ironically, a lot of those people are the same ones that couldn't see any point in overpaying their mortgage because rates are so low...
It's the same for BTL and homeowner mortgages.
But what if you bought the place before the stress tests came into force (as I did)? Then you come to re-mortgage and all of sudden no-one will lend to you unless you significantly reduce the borrowing? These stress tests only apply to BTLs so it's not the same for homeowners.It's the same for BTL and homeowner mortgages.
I was aware of the SVR and will pay it if I have to, but when I bought the property I had no way of knowing that 4 years down the line nobody would lend to me unless I overpay a huge amount, this is why I believe the PRA stipulated that re-mortgages shouldn't be impacted.
The frustrating thing is that I can comfortably afford the stressed repayments by using my personal income, but they refuse to take personal income into account and will only look at the rental income.
If this was a residential mortgage and I couldn't re-mortgage because I've had a pay cut or similar I wouldn't be complaining, that's my problem. But in the BTL world, the regulators/lenders have moved the goalposts.
Not a broker but I suspect that the OP is mixing the requirements and policies of lenders in relation to residential mortgages (nice and fluffy and whilst there is a big stick down the road you really have to try hard to get hit with it) with a BTL mortgage (Business borrowing from a business on commercial terms and hard as nails if you step outside the rules and get caught.)
Perhaps I should clarify. The PRA introduced a stress testing regime for BTL mortgages. I owned my property before this was announced/introduced. The PRA specifically stated that it shouldn't apply to re-mortgages, to avoid people being unable to re-mortgage. My broker has stated that lenders are applying the stress tests regardless of whether it's a re-mortgage or not. I'm trying to determine if my broker is wrong, or if the lenders have ignored the PRAs advice and applied the stress tests across the board (including re-mortgages).
XJ75 said:
But what if you bought the place before the stress tests came into force (as I did)? Then you come to re-mortgage and all of sudden no-one will lend to you unless you significantly reduce the borrowing? These stress tests only apply to BTLs so it's not the same for homeowners.
I was aware of the SVR and will pay it if I have to, but when I bought the property I had no way of knowing that 4 years down the line nobody would lend to me unless I overpay a huge amount, this is why I believe the PRA stipulated that re-mortgages shouldn't be impacted.
The frustrating thing is that I can comfortably afford the stressed repayments by using my personal income, but they refuse to take personal income into account and will only look at the rental income.
If this was a residential mortgage and I couldn't re-mortgage because I've had a pay cut or similar I wouldn't be complaining, that's my problem. But in the BTL world, the regulators/lenders have moved the goalposts.
Obviously BTL has a different stress test than a homeowner mortgage, my point was that they've both been toughened up recently, so home owner mortgage borrowers could easily find themselves in a similar situation. I'd argue that's more unfair to treat home mortgagee's that way than it is for BTL customers (a business/investment, and you should have been aware/advised of the risks when you got into it). At least you have a way out of BTL (selling up) without loosing the roof from over your head.I was aware of the SVR and will pay it if I have to, but when I bought the property I had no way of knowing that 4 years down the line nobody would lend to me unless I overpay a huge amount, this is why I believe the PRA stipulated that re-mortgages shouldn't be impacted.
The frustrating thing is that I can comfortably afford the stressed repayments by using my personal income, but they refuse to take personal income into account and will only look at the rental income.
If this was a residential mortgage and I couldn't re-mortgage because I've had a pay cut or similar I wouldn't be complaining, that's my problem. But in the BTL world, the regulators/lenders have moved the goalposts.
The govt can move the goal posts at any time (see pensions etc). It's a b
d, but such is life.I guess they refuse to take your personal income into account because there's a fair chance that you've already effectively used that up on your own home mortgage. Otherwise, a BTL investor could just keep taking out more and more mortgages off the back of their income, which would clearly be risky/inappropriate.
Yeh - I see your point.
I think I've got a couple of choices:
I think I've got a couple of choices:
- Do a "product switch" with my current lender, this won't attract the stress testing (apparently), rates aren't hugely favourable but it's not the end of the world.
- Pick a 5-year fix where the stress tests aren't quite as harsh, I would still have to make a small overpayment, but it's manageable.
This is exactly what the banks want to an extent. The fantastic low rate introductory offers are to draw people in, and they hope that they can get them stuck on the SVR after a couple of years. If you look at the comparison charts for mortgage rates, you'll see that generally the one's with the lowest introductory rate also have a higher SVR, and that could work out to a massive difference over the full term of the mortgage.
The other thing to consider is whether or not this is going to force rents up.
Another way to get round this is increase my rent, I would say my rent is probably below market rate and I haven't increased it in 3 years. If all landlords think along those lines then rents will go up across the board.
Another way to get round this is increase my rent, I would say my rent is probably below market rate and I haven't increased it in 3 years. If all landlords think along those lines then rents will go up across the board.
XJ75 said:
The other thing to consider is whether or not this is going to force rents up.
Another way to get round this is increase my rent, I would say my rent is probably below market rate and I haven't increased it in 3 years. If all landlords think along those lines then rents will go up across the board.
Most landlords I know are totally comfortable with how the mortgage market is and the stress tests are easy to pass. It seems they're only really tricky if you have something out of kilter with your equity and/or yield. Another way to get round this is increase my rent, I would say my rent is probably below market rate and I haven't increased it in 3 years. If all landlords think along those lines then rents will go up across the board.
Basically it should prevent the rise of the overleveraged which can only be a goo thing IMO.
terrydacktal said:
Most landlords I know are totally comfortable with how the mortgage market is and the stress tests are easy to pass. It seems they're only really tricky if you have something out of kilter with your equity and/or yield.
Basically it should prevent the rise of the overleveraged which can only be a goo thing IMO.
Agreed that preventing the rise of the overleveraged is a good thing, but surely the way to do that is cap the LTV?Basically it should prevent the rise of the overleveraged which can only be a goo thing IMO.
My LTV is just under 65%, but my property is low yielding, hence the stress test failure.
XJ75 said:
terrydacktal said:
Most landlords I know are totally comfortable with how the mortgage market is and the stress tests are easy to pass. It seems they're only really tricky if you have something out of kilter with your equity and/or yield.
Basically it should prevent the rise of the overleveraged which can only be a goo thing IMO.
Agreed that preventing the rise of the overleveraged is a good thing, but surely the way to do that is cap the LTV?Basically it should prevent the rise of the overleveraged which can only be a goo thing IMO.
My LTV is just under 65%, but my property is low yielding, hence the stress test failure.
Give us the figures of rent, mortgage, equity etc - I'm intrigued.
Yeh I realise both are important and I'm not against them trying to restrict either, I just wonder how many people will end up "mortgage prisoners". I guess I'm probably not in this category as I have a couple of options, but neither option is as favourable as I would get if the stress tests didn't exist.
Property is worth £365k, mortgage is £226k, rental is £1275 a month. It's in the south east so has done well from capital growth but yield is poor. If I was buying a BTL today I wouldn't touch it with a bargepole but I used to live in it so it cost me nothing to keep it and rent it out.
Property is worth £365k, mortgage is £226k, rental is £1275 a month. It's in the south east so has done well from capital growth but yield is poor. If I was buying a BTL today I wouldn't touch it with a bargepole but I used to live in it so it cost me nothing to keep it and rent it out.
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