BTL Stress Tests

[XJ75]

I've only been looking at IO mortgages.

They use 145% @ 5.5% interest rate. Borrowing £226k that works out at £1,501, a pretty sizeable shortfall of £226 a month against my rental income

[terrydacktal]

I feel sure speaking to a better broker would help you as that's crazy!

[XJ75]

Apparently not all lenders use 145%.

And if you take a 5-year fix the stressed interest rate drops to 5%.

So there might be a solution somewhere.

Virgin Money uses a stressed interest rate of 4.74% if you fix for 5 years. I'd still need to overpay £4k to pass the stress tests at that rate, but it could be worse.

I agree it's ridiculous

[Cblair246]

I feel your pain OP as I'm in almost exactly the same situation. Previous house I lived in and is now rented out. Old mortgage has run out and I'm about £40k short to meet the 145% criteria. Added to the fact my salary income is in a foreign currency means I'm pretty much screwed and now a mortgage prisoner.

If you find any lenders who are a bit more realistic in their criteria please let me know.

[XJ75]

I discovered that Furness Building Society don't apply a stress test in the same way as everyone else, but they will do a full affordability assessment using your personal income (I think this is called top slicing).

The rates aren't very competitive though.

[XJ75]

Actually there's a pretty useful list of some lenders and their policies here:

http://www.telegraph.co.uk/personal-banking/mortga...

[MrChips]

I was in exactly the same boat as you OP, and oddly enough, my figures are pretty much identical in terms of house value, mortgage and rent etc.
We first mortgaged when generally stress tests were 125% rather than the now common 145%.

Sarnie helped me out with some advice but I've ended up getting onto another discount tracker with my current provider (Nottingham) in the shorter term. I plan to revisit it in a few months.

Definitely speak to a few brokers, including Sarnie. There are some places that will apply a lower stress test if it's not additional borrowing, and some which will take into account any salary surplus you have (I vaguely remember it was Barclays that do this). However it does seem to be the lenders with the better rates that strictly enforce their stress test, and I can appreciate why.

I understand the need for stress tests, however if I could get onto a 5yr fix at 1.54% which is one that was on offer, then the profit increase would enable me to reduce the loan in 5yrs time to well within the 145% tests, so for a provider to just apply the test as a blanket approach doesn't seem entirely necessary.

Assuming you have a mortgage on your main residence, could you borrow more on this one to offset against the BTL mortgage?

Edited by MrChips on Friday 15th September 22:24

[Mr Noble]

For the last 18 years I've always taken tracker rate mortgages as you never have to remortgage and can choose to do so if and when there's a better deal to be had.

The intro rate isn't quite as good, but over the longer term there is zero hassle and zero additional fees.

I have mortgages takan out 12 to 18 years ago on about a +0.5% over BofE base rate, which I still have running at the same rate. It's been mega!


Maybe you should be looking at these rates so you're not faced with this again in 2/3/5 years when the deal ends.