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BUY-TO-LET LOOPHOLE?

From our February Ezine

We are seeing more brokers referring clients to us when they want additional funds through second charge mortgages against their buy-to-let property.

From 1 January, the Prudential Regulation Authority (PRA) has imposed loan to income limits on regulated mortgage contracts.

The new LTI levels can be very tough for some borrowers. For example, the PRA rental calculations also assess tax liabilities of borrowers and examine which tax brackets are applicable.

For the highest bracket, calculations will be as high as 160% making it nearly impossible for landlords. The only option to bring down the LTI calculation is to use a second charge deal and we believe that is why we are seeing more referrals.

Second charge lenders are applying similar stress tests but some don’t fall under the guidance of the PRA so they can still work on the basis of a 120% rental calculation. This is where the majority of business has been written previously.