The Buy-to-Let mortgage market

The buy-to-let mortgage market has seen some difficulties within the last 12 months, particularly around affordability for landlords looking to re-mortgage.

The way in which a lender assesses how much can be borrowed on a buy-to-let property is by applying the rental income being received to a stress test. The stress test works out what the monthly payment would be on an assumed interest rate, and then ensures that the rental income covers this by a certain percentage, the most common being 145%.

For the last decade we have become used to lenders’ stress tests using the highest assumed interest of 5.5%. This, in the eyes of the lender, was the highest it would rise to in the foreseeable future. Of course, this stress testing proved to be too lenient with the high-interest rate rises last year, particularly in the autumn following Liz Truss’s ill-fated mini-budget. As a result of this lenders have increased the interest rates they use in their stress tests to reflect updated market conditions.

What this means in simple terms is that the same rental income now allows you to borrow less than it did last year or for the last decade.

Thankfully, interest rates have been consistently reducing since the turn of the new year, albeit at a slow pace. Stress tests that once meant landlords could not borrow enough to re-mortgage may now work again. There are also more specialist lenders who are willing to take more risk, using a more lenient stress test, a particularly attractive option for borrowers struggling to borrow the amount required.

Some Lenders offer a different way of assessing affordability for internal product transfers, details of these are available to Brokers.

It is best to speak to a broker who can properly survey options and give you the best possible chance of borrowing the amount required. In a quieter property market, we are potentially seeing many landlords leave the property market at discounted prices for fear of not being able to refinance. With the landscape changing rapidly a conversation with a broker could mean this decision is no longer required.

For an informal introduction with an independent advisor, please speak with our lettings team on 01252 551045.