Mortgages  

The Mortgage Works brings in stress rate for BTL lenders

The Mortgage Works is set to make changes to its stress rate on buy-to-let mortgage applications between 65 and 75 per cent loan-to-value (LTV).

From November 20, TMW, which is part of Nationwide, will offer eligible borrowers a stressed rate of 5.49 per cent on applications between 65 per cent and 75 per cent LTV.

The change is a half a percentage point – from 4.99 per cent – more than what the lender currently applies to loans of up to 75 LTV; rates above that level will remain at 5.99 per cent.

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In addition, existing stress rates will remain the same, as will those for fixed-rate terms of five years or more.

TMW said the move is aimed to strengthen landlords’ ability to withstand future Bank of England base rate rises, helping them manage their cash flow beyond the maturity of their deal period.

It adds that the majority of customers will be unaffected by the changes.

TMW’s rental calculation will continue to use the higher of either the stressed rate or product rate against a rental cover position of 125 per cent.

The company has made a host of changes to its LTV product over the past couple of months.

In late October, the lender offered first time landlords the ability to choose from their 80 per cent LTV products, previously only available to seasoned landlords.

In September, TMW introduced new two, three and five-year fixed-rate and two-year tracker products to the 60 per cent loan-to-value tier, with rates now starting from 2.39 per cent.

Existing two-year fixed rates were also reduced by up to 0.6 of a percentage point.

The move has enabled customers with larger deposits to access more competitive fixed-rate deals.

Providers view:

Henry Jordan, managing director of TMW, said: “As a responsible lender, we continually review our criteria, and these changes are intended to give an extra measure of protection to our customers.

“Tiering stressed rates by LTV ensures alignment to our pricing structure and reflects the likely options available to landlords when their existing product matures. Maintaining a stressed rate of 4.99 per cent on five-year fixed-rates recognises the additional payment security that longer-term products provide. Together, these changes strike the right balance between prudence and supporting the market.”

Advisers view

Mike Richards, director of Mortgage Concepts Associates, said: “I think it is a great shame to limit the amount landlords can borrow from the major mortgage lender.

“I appreciate the logic behind limiting borrowing options because a rise in base rates could cause problems to borrowers in the future. But I believe the real reason behind the move is because TMW is attracting a big share of the market.

“There is a group of experienced, responsible and financially competent landlords who know when they can afford to borrow more. This move will have the greatest impact on them.”

Verdict

Though the rationale behind the move – that is to protect borrowers from increases in base rates – seems genuine and makes sense, one cannot help but rue the impact it will have on responsible and enterprising landlords who could potentially help to tackle a shortage of homes in London and other parts of the UK. These landlords would know when their borrowing became unattainable [DOES HE MEAN UNTENABLE???].