Impossible to Get a Remortgage?

by Readers Question

8:58 AM, 22nd December 2016
About 2 years ago

Impossible to Get a Remortgage?

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Impossible to Get a Remortgage?

Hi there. I have been renting a property out for the last 15months (having lived in it beforehand) and have really struggled to get a mortgage.mi2

Current Rent: 620/pw
Current Mortgage: 417,000
Property Valuation: 650,000
Employment: Aug 2016 onwards (so 4months continuous employment)

I have been told that the criteria is too low from so many different lenders despite the income being almost 2.5x the potential monthly interest rate. I find this crazy, but also understand the reasons behind it. I have just instructed my mortgage advisor to conduct a mortgage product transfer to save me 400 GBP per month compared to their SVR.

Surely many landlords in the capital must be falling foul of these remortgage rules?

Im a first time poster so any comments or thoughts are welcome. I will also be posting on a new thread regarding a conversion project I am currently working on.

Tks guys

Neil



Comments

Neil Patterson

9:10 AM, 22nd December 2016
About 2 years ago

Hi Neil,

Under the new PRA rules (except for fixed terms of 5 years or longer) the new affordability stress testing will be 145% interest cover at a minimum notional rate of 5.5%.

The above equates to every £1 of rent achievable per month allowing you to borrow a total of £150.47.

Eg in your scenario above £620 x 52weeks = £32240 divided by 12 = £2686.66 per month x 150.47 = £404,262 potential maximum borrowing.

Hence you potentially falling short. However, not all lenders and products (5y fixed plus) have changed yet to the new rules, but I am assuming your Broker has done a full Fact Find and whole of market search to check this.

Also some lenders criteria changes when the rental income exceeds £25,000 per annum.

An average income stress testing before the new PRA rules was 5.5% notional rate at 125% interest cover allowing you to borrow £174.54 per £1 of monthly rent.

The above equates to a 13.79% drop in rental income borrowing power.

David Simms

11:13 AM, 22nd December 2016
About 2 years ago

Hi Neil,

I'm in a similar situation with a small portfolio in South West London. Currently my debt is based on a stress test of 5% and 1.25 interest cover so I'm even further from being able to refinance to the same LTVs I have today.

I'm selling the lowest yielding property and planning to go onto 5yr deals for the other properties. There are some 5yr deals still operating under less onerous stress tests. This is an awful lot of effort just to stand still! I can't see how buy to let will work in London under these stress tests going forward.

I'm sorry this doesn't help your situation but you are by no means the only one working through these issues. Mark has made many post about potential solutions so in the longer term these should mitigate the current issues but it will be a tough few years while we navigate through all the changes.

David

Science Student

11:41 AM, 22nd December 2016
About 2 years ago

Under the new PRA regulations, I understood that if you are remortgaging without capital raising ( ie not asking for any additional funds) you are not subject to the higher stress tests.

Eg if you get a mortgage today satisfying a 5.5% /1.25 stress test, then in 2 years time you can move to a new product with the same lender without satisfying a the higher stress test that would be in place for new borrowers.

Neil Patterson

11:47 AM, 22nd December 2016
About 2 years ago

Reply to the comment left by "Science Student" at "22/12/2016 - 11:41":

Ah Yes Science Student you are quite correct, but in this case though it may be converting from a Residential mortgage to a BTL and may fall under the new rules.

David Simms

11:54 AM, 22nd December 2016
About 2 years ago

Reply to the comment left by "Neil Patterson" at "22/12/2016 - 11:47":

Yes I understand the same on individual properties. My next round of re-financing will be around the time the portfolio rules (4+ properties) kick in. I'm not sure if I can rely on the individual lenders applying the re-finance exemption and even if they do I'm sure it will be on an inferior rate to the market leading deals. It just means you have to spend a lot more time on non-value adding activities to work the new complexities rather than growing the value of the portfolio through new investment. I guess I'm planning for the worst, increasing my non-invested/productive cash balance and then hoping for the best.

Science Student

12:02 PM, 22nd December 2016
About 2 years ago

Regarding the original posting, the numbers are tight but I think there are a handful of lenders that would fit however i'd encourage you to do so ASAP as lenders are changing their policy readily and I suspect most would have done so buy 3rd Jan.

Douglas Barley

12:45 PM, 22nd December 2016
About 2 years ago

Hi Neil. I believe that it will become impossible to remortgage as in the past any property in the capital or the South East of England. I am surprised that there has not been more fuss, I am very worried that when my fixed term(s) come to an end it will be difficult to get a re-mortgage. As a typical example I have several houses which rent for between £1250 and £1350 pcm. The rents would have to rise to about £1750 to £1900 approx. to stay still (this is calculated from the figures given me by my financial advisor). At present I am hopeful that some form of creative way around this may appear but there is no guarantee. It is totally different in the North of England, the houses I have here work out within the stress test, the only problem is that the houses have not moved much in value for years. The plus side is that lenders want to lend and owners want to borrow so I think in due course a way around some of this may occur even if it has to be a commercial loan at a slightly higher rate.

Best wishes Doug.

Jack Craven

13:32 PM, 22nd December 2016
About 2 years ago

@ Dave Simms.
Hi Dave, whats this about rules for 4 + properties ?
I must have missed something.
Jack.

David Simms

14:11 PM, 22nd December 2016
About 2 years ago

Reply to the comment left by "Jack Craven" at "22/12/2016 - 13:32":

Hi Jack,

I refer to the PRA criteria - see section 3 http://www.bankofengland.co.uk/pra/Documents/publications/cp/2016/cp1116.pdf

Essentially it will require any lender offering a mortgage to a portfolio landlord (defined as someone with 4 or more mortgage properties) to complete a more detailed assessment of the borrower. The lender will need to check the borrower can meet the criteria not only for the property the mortgage applies to but also their whole portfolio.

BobbyG

9:15 AM, 23rd December 2016
About 2 years ago

Could somebody explain how the new rules @ 145% equate to borrow £150.47 for every £1 of rent achieved. I'm doing the maths but I'm not getting the same figure.

Thanks!

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