David Whittaker, Managing Director of Mortgages for Business, told the audience at the Financial Services Expo (FSE) Manchester on Wednesday that increases in the stress test levels used by buy-to-let mortgage lenders should not be viewed as an ‘Armageddon moment’ for the sector.
Whittaker (pictured) highlighted the increase in stress test levels initiated by amongst others, The Mortgage Works (TMW), recently and suggested that when making a historical comparison the maximum leverage available to borrowers was not being significantly impacted.
Commenting on TMW’s recent move from 125% to 145% Whittaker said: “[Given] 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.”
However, he did say that TMW’s ‘first mover’ status in the marketplace to 145% may only be a transitionary approach with the mathematical equation suggesting that 156% was the appropriate stress test for higher-rate taxpayers post-2020 when the full changes to mortgage interest tax relief would be in place.
He said: “145% is a good positioning point that will serve TMW well for the next two to three years.”
Whittaker also focused on the major benefits that borrowers could secure by moving their existing properties, and making new purchases, through a limited company structure. One of those benefits being that with a limited company, regardless of its profitability, a 125% stress test would be applied.
He said: “The 125% stress test for a limited company buy-to-let won’t change. However, when it comes to personal buy-to-let there are already lenders making initial steps and fine-tuning including Woolwich, Paragon, BM Solutions and Kent Reliance. More will move prior to the CP11/16 [on buy-to-let mortgage underwriting] announcement in Q3 2016. I think it is a done deal rather than a consultation.”
