Welcome to Thinking Outside the Blog

Adrian Moloney - Group Intermediary Director

Published 29.09.2023

Whisper it quietly, but last week’s announcement that the bank base rate has been held at 5.25% for the next few weeks at least could be the first glimmer of hope the buy to let market’s seen in a long time.

Following 14 straight rate increases which have seen affordability tests become increasingly challenging, the rate freeze, together with the unexpected but welcome drop in inflation, has probably had landlords up and down the country breathing a collective sigh of relief.

So, with things looking as though they may finally be on the up, I’m excited to be able to bring you two more pieces of good news from Precise Mortgages which could give your customers access to mortgages they might not have been able to before and boost the loan size they get.

To start with, we’ve simplified the minimum interest cover ratio (ICR) for personal ownership applications by aligning the calculation for higher rate and additional rate taxpayers at 140%. That’s 5% lower than it previously was for higher rate taxpayers and a massive 20% drop for additional rate taxpayers.

And that’s not all. We’ve also reduced our assessment rate on our short-term fixed rates and variable rate trackers and now assess them at pay rate plus 1.55% at a minimum of 5.50%. This applies to all customers, so whether they’re looking to purchase or remortgage and need finance for a single dwelling or HMO property, everyone stands to benefit.

This is great news for your landlord customers, particularly with our limited edition range still being available and where our lowest 2-year fixed rate of 4.69% now has an assessment rate of just 6.24% compared to 8.50% previously. That’s a huge improvement and opens up more affordability options and access to larger loans.

To show how these enhancements could help your customers achieve a huge increase in the loan size available to them, let me talk you through an example which illustrates just how much they could get now compared to what they could have got before.

• A portfolio landlord operating in a limited company structure wants to purchase a new HMO property valued at £1.8 million. They intend to rent it out to six tenants and expect to receive £7,800 in gross rental income per month.
• They need to borrow £1 million at 75% LTV. They want to take out our 4.79% 2-year fixed rate mortgage which comes with a 5% product fee.
• BEFORE: The maximum loan we could have considered based on our previous short-term fixed rate affordability calculations would have been £838,967, well below the £1 million the customer needs.
• Using our top slicing feature, the customer could have achieved the loan size needed, but they’d need evidenced monthly disposable income of around £1,500 to top up the rental shortfall.
• Alternatively, they could have achieved the £1 million loan amount but they’d have to have used our range of 5-year fixed rates to do so.
• NOW: With our enhanced calculations the maximum loan we can now consider on a short-term fix is £1,124,807, well over the £1 million the customer needs and without having to use top slicing, plus they have the added flexibility of a greater choice of fixed rate product terms.

Even if you’ve recently tried placing a case with us but had the application declined, why not try again with our enhanced calculations? As you can see from the above example, your customer may now be able to access the loan size they need. You can even clone your previous DIP to save time!

To find out more, speak with your business development manager, call our dedicated support team on 0800 116 4385 or get in touch using Live Chat.