B2L Mortgage Stress Testing
Am I missing something, or is the current regime counter-productive? It seems lenders have to stress-test affordability by applying a fictional rate of 5-5.5% even though the lender on a fixed rate loan would be contractually prevented from increasing the rate within the fixed period which could be up to 5 years - so no chance of the mortgage going up, but every chance that rents would increase during the period. In addition, the margin applied is now up to 145% of the mortgage repayment - not the actual repayment, but the fictional one that is never going to apply (or at least not during the fixed rate period, and then when that ends, surely we are going to be seeking new deals?). So far as I can see, this means that it is going to be nigh on impossible to secure 75% LTV borrowing on an average family home, as the fictional rates and margins being applied are going to reduce the amount that can be borrowed to 60-70% max. All this means that I can't raise the finance I need against my portfolio, and I must charge my tenants the absolute top rents so as my demonstrable margin remains high. By way of example, I have an excellent tenant of 3 + years standing, and the market rate for the property is about £725 pcm. I haven't increased her rent beyond the £630 she can afford, and I have never had a missed payment or void on that unit. However, as I want to re-structure the borrowing to pursue other investments, I am now going to have to increase the rent and either lose her, or risk the uncertainty of receiving regular payment. Or, I sell the property to free up my ham-strung capital and avoid the lettings business altogether. Are others finding this a ridiculous situation?
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