Of the top six mortgage lenders, by market share in 2015, only one, Nationwide, has decided to use the Prudential Regulation Authority’s (PRA) exemption for pound-for-pound remortgaging borrowers. Landlords remortgaging to Nationwide on a like-for-like basis who are not exceeding 65% loan-to-value will not be subjected to tougher affordability testing under the PRA’s new rules.
From the first of January, the PRA told regulated buy-to-let lenders they must either use an Interest Coverage Ratio (ICR) to assess borrows’ affordability, using a stress rate of 5.5% and an assessment of all property-related expenses and taxes, or complete an affordability assessment of applicants’ personal circumstances and rental income.
However, the PRA has offered a get-out clause for existing landlords shopping around for a new deal. It said, that to avoid existing borrowers being adversely affected when remortgaging, its new affordability rules do not apply if the landlord is not increasing the size of their current mortgage, irrespective of which lender that contract is with.
Despite this, the remaining five heavy-hitters, NatWest/RBS, HSBC, Santander, Barclays and Lloyds Banking Group are treating remortgaging borrowings the same as they would treat customers looking for a new loan.
A spokesperson for Santander said: “We are reviewing the market post-PRA paper and will look to further understand the new guidance to help customers moving between lenders.”
The high street’s attitude to its own borrowers, however, is more welcoming with five of the big six, confirming they were happy to allow their existing customers to be considered for a product switch without a new affordability assessment. NatWest stands apart on this approach.
A BM Solutions spokeswoman said: “Our customers who have come to the end of their fixed term and maintained existing payment arrangements will be eligible for a new product rate maintaining their current terms and conditions. As a responsible lender, we would carry out full mortgage affordability assessment for customers looking to remortgage with us from other lenders.”
NatWest’s Interest Coverage Ratio (ICR) of 145% of 5.5% applies indiscriminately across all types of buy-to-let borrowers, including its own customers who are product switching without capital raising.
Away from the high street, some lenders are taking a more flexible view. Kent Reliance is not applying a minimum stress rate to pound-for-pound remortgages with rental cover assessed against the initial pay rate plus 1.05%.
Specialist buy-to-let lenders are tipped to be in pole position to grab market share in what is predicted to be flat market this year as they take advantage of the flexibilities offered by the PRA for the assessment of income.
Due to the receipt of later information, the story has been adjusted post-publication.