January 2017

Buy to Let - More Government Intervention

Due to increased concerns on an overheated buy to let property investment market, the UK government has implemented a new rental calculation to be adopted by lenders.

This comes on top of the increase in stamp duty tax for second properties and changes in tax treatment, for example on mortgage interest relief.

The changes best illustrated in the example below.

Example 1 Example 2
Purchase price/Valuation  
£250,000 £250,000
Mortgage Advance  
£187,000 £187,500
Rental Earned Per Month  
£950 £950
Rental Calculation to 31/12/2016 Rental calculation From 01/01/2017
Average pay rate 4.50% Stressed at 125% Notional Rate 5.50% Stressed at 145%
£187,500@4.5% = £703.12 interest only per month. £187,500 @5.50% = £859.37 interest only
Stress at 125% = £878.90 Stress at 145% = £1246.03

With example 1 the advance required meets the rental calculation and £187500.00 would be available.

With example 2 there is a shortfall of £296 per month on the rental received.

Using the new calculation, with a rental of £950.00 per month £143,000 would be available and not the £187,500 required.

The general rule on the rental assessment is that for every £1000 borrowed, monthly rental must be assessed at £6.64 per month.

We have access to a lender that will consider “topping up” a shortfall in the required advance using earned income. This is subject to affordability and payment in an acceptable currency.

Landlords with 3 properties will now be classed as professional and will not be able to access the high street lenders to fund further property acquisition.

Depending on country of residence, we have access to lenders who have higher property limits.

International Mortgage Plans January 2017


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