Magellan Homeloans has developed an online tool designed to simplify finding suitable funding options for buy-to-let clients.
A broker can input basic borrowing requirements and obtain an immediate snapshot of the maximum loan available across Magellan’s entire product suite including two and five-year fixed rates, a Libor tracker and multiple fee options.
The calculator also flags circumstances where the borrowers may be able to borrow a greater amount if they apply through a limited company, which Magellan says is particularly important for buy-to-let purchases where a conversation with the clients’ accountant or tax adviser could be invaluable.
Simon Read, Magellan’s managing director, said: “Our partners were asking for a simple tool to quickly understand how much a buy-to-let client could borrow, whatever their situation and structure.
“Buy-to-let is complicated so by using our expertise in this market we can offer simple answers to complex situations and help brokers better understand the borrowing options open to their buy-to-let clients.
“Buy-to-let affordability tests are not necessarily easy to ascertain as they are made up of two parts; the Stressed Interest Rate and the Interest Cover Ratio (ICR), with the calculations not only varying from lender to lender but also product to product. By having a simple way of illustrating them, brokers can become more accustomed to their impact and increase understanding and knowledge.
“Our improved buy-to-let calculator hasn’t come about because of particularly new technology but has been driven by customer need, customer feedback and our desire to make life that bit easier for our brokers. It’s about the art of the possible.”
Income Cover Ratio (ICR) tests ensure the expected rental income can cover the loan repayment whilst also allowing for ancillary costs relating to the property such as management fees, utilities and maintenance, but also a borrower’s income tax liability. Unlike other buy-to-let lenders who penalise those applying for a buy-to-let loan in their personal names by calculating the ICR by taking the highest tax rate of the joint borrowers, Magellan’s calculation reflects the reality of each individual’s personal tax position. This tax position is then blended to optimise the performance of each client’s property share, again maximising affordability.
Read added: “I believe blended ICRs are the future of the buy-to-let sector as most buy-to-let lenders are currently penalising joint borrowers unnecessarily. Our approach proves this doesn’t have to be the case and empowers brokers with another way to help joint borrowers optimise their borrowing position.”