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No panic needed over buy to let affordability changes

Tuesday 07 June 2016

An industry expert has played down the recent increase to the affordability test levels for second mortgages, claiming it is not doom and gloom for those in the buy-to-let sector.

The Mortgage Works recently hiked up the affordability test levels - which lenders use to gauge how borrowers can make repayments through rental coverage - from 125% to 145%.

The lenders buy-to-let arm also halted all lending at 80% and above loan-to-value(LTV) - the percentage of the mortgage a borrower can receive in relation to how much the property is worth.

It may not have the negative impact some may suggest

But while it might seem like it will heap more pressure on prospective landlords and restrict the number of those able to secure a mortgage for a second home, it may not have the negative impact and dent confidence that some may suggest.

That is according to David Whittaker, the managing director of Mortgages for Business, who spoke recently at the Financial Services Expo (FSE) Manchester - the financial services' exhibition in the north.

He said: "“Given that this is supposed to be a ‘seismic shift’ that we’re all worried about, with 145% on an average yield of 5.8% the maximum leverage available is still 73% LTV.

“Since January the yield has not changed and the maximum leverage is down from 84%, but the product limit was 80% anyway. This is not an Armageddon moment.”

He also argued that the jump to 145% in the affordable tests levels may only be a 'transitionary approach'.

“The mathematical equation suggests that 156% was the appropriate affordability test for higher-rate taxpayers post-2020 when the full changes to mortgage interest tax relief would be in place," he added.

Meanwhile, he pointed out the benefits borrowers could experience by moving their existing properties and the acquisition of new homes through a limited company structure, which includes a 125% affordability test level still in force.


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