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Vicky Nunes

Episode 229: The mortgage shake-up you need to understand

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This week's episode is all about a shake up in the mortgage market that may have just slipped under the radar. Now, some of you won't be affected by this at all but some of you really will so you wont want to miss the details. 

 

So, the Bank Of England has an arm called the Prudential Regulation Authority (PRA) that regulates lenders. They’ve brought in new rules that lenders must follow, to avoid the risky lending that contributed to the last crash.

 

This is happening in two parts:

 

  • Tougher rental cover tests, since January 2017
  • “Portfolio landlord” underwriting, from September 2017

 

Listen in full here.

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Excellent Podcast.  Just one comment, you said that the new mortgage affordability rules do not apply on fixed rate mortgages of 5 years plus.  Slight correction on that, the rules still apply but they will use 125% or 145% of your rental income versus that actual mortgage amount you are paying rather than using the 5.5% interest.  This i guess is because this is viewed as long term rate that will allow you time to adjust when interest rates do increase.

 

what interests me is when I come to do the mortgage renewal of 2 of my properties that are currently on a 5 year fixed term and the lender wants to look at my full portfolio, will they still allow me to use the fixed rate of the other properties where the remaining fixed term for the calculation even though there will be less than 5 years remaining on the fixed term?

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I assume due to the tougher rental cover tests, this will restrict the amount of equity you can release from the property?

 

For example if you bought a property for £120K and the rent was £600 then you can borrow £90k.

(75% LTV = £90k and 6 x £15000 = £90k (going off £15k off borrowing for every £100 rent))

 

But if the property experienced good capital growth over a fewyears to say £140k while the rent didn't increase then you wouldn't be able to access the equity and remortgage.

 

Is there any other way to release the equity, while remortgaging without having to raise the rent?

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