Accord Buy To Let is changing its approach to minimum rental cover requirements.
The lender says it is making the move to reflect differing levels of costs incurred by landlords in managing a buy-to-let property.
Accord will now take into consideration whether a property is a freehold or leasehold, and differentiate where a landlord is looking to remortgage their existing property where no additional capital raising is required.
Product term | |||||
Less than 5 years | 5 years | ||||
Property type | Mortgage type | ICR | Stress rate* | ICR | Stress rate |
| Freehold | Remortgage (no additional capital raising) | 135% | 5.5% | 135% | 5% |
| Remortgage (capital raising) | |||||
| Purchase | |||||
| Leasehold | Remortgage (no additional capital raising) | ||||
| Remortgage (capital raising) | 145% | ||||
| Purchase | |||||
(ICR = Interest Coverage Ratio)
*Stress rate or 2% above product pay rate, whichever is the higher
Remortgages with no additional capital raising excludes any completion fee which can be added to the loan
Under the new requirements, which come into effect from today, landlords taking out a five-year fixed rate will continue to enjoy an interest coverage ratio (ICR) of 135% at a stressed rate of 5% or the product rate, whichever is the higher, irrespective of property tenure or whether a purchase or remortgage.
Landlords who are looking to re-finance an existing buy-to-let property and not raise additional capital will also benefit from an ICR of 135% irrespective of the product term. A stressed rate of 5% will apply for a five-year fixed rate, for shorter term products a stress rate of 5.5% (or 2% above pay rate) will apply.
Landlords looking to purchase or remortgage (with additional capital raising) on a leasehold property will require an ICR of 145% at either 5% for a five-year fixed rate or 5.5% for shorter term products. The increase in ICR reflects the additional cost in managing a leasehold property.
Prior to today’s changes all buy-to-let borrowing was subject to a 135% ICR, and a stress rate of 5.5% for terms of less than five years and 5% for five year products.
Chris Maggs, Accord Buy To Let’s commercial manager, said: “The changes to stamp duty and taxation impacting landlords, along with additional lender requirements around affordability, make it a challenging time for landlords.
“Most lenders have made significant changes to their interest cover ratios and stress rates, and at Accord we have tried to create flexibility by introducing variable rental calculations to support landlords whilst trying to keep it relatively straight forward.
“We’ve always taken a cautious approach to our minimum rental calculations, prior to regulatory requirements being introduced, to ensure landlords are able to cover all cost associated with managing a rental property. This means we are in a robust position to offer landlords a competitive rate.
“We’ve reassessed our rental calculations to fairly reflect the level of costs incurred across the range of landlords’ properties, which also take into consideration the changes in the buy-to-let market. Landlords are currently reviewing their portfolios to ensure they’re working in the best way for them.
“We’re committed to supporting landlords to maintain a sustainable rental portfolio and we hope these adjustments will make a difference – whilst keeping things simple for brokers.”
