PRA- 5 year fixed rates with lower rental coverage requirements
January 1st 2017 was the deadline for all Prudential Regulation Authority (PRA) regulated lenders to implement new underwriting criteria.
These changes affected criteria that lenders have to use to calculate whether, as a borrower, you could afford monthly repayments if your financial circumstances changed or there was a change in interest rates.
Some 5 year fixed rate deals were not subject to the tighter affordability criteria, and therefore if you face the scenarios outlined below a 5 year fixed rate may provide you with more generous borrowing opportunities than other initial rate period deals.
5-year fixed rate deals
The table below highlights three particularly competitive 5 year fixed rates, but we do have many other deals available. Call our advisors today to discuss.
|Product type||Initial rate||Max LTV*||Product fee||ERC's**|
|5 year fixed||2.49%||60%||£1,995||For 5 years|
|5 year fixed||3.29%||75%||£1,495||For 5 years|
|5 year fixed||4.49%||80%||1.50%||For 5 years|
YOUR PROPERTY MAY BE REPOSSESSED IF YOU DO NOT KEEP UP REPAYMENTS ON A MORTGAGE OR ANY OTHER DEBT SECURED ON IT.
*LTV - Loan to value
**ERC = Early Repayment Charge
How can I benefit from these deals?
Below we summarise how these deals can help with four buy to let investment scenarios:
Looking to buy high value property or in a city?
If you are looking at buying high value property, or in a big city where property is particularly expensive, these deals may be of interest to you.
Rental income for expensive property can sometimes inhibit the amount you can borrow when calculated against the property value, but your strategy focuses more on capital growth.
Because 5 year fixed rate deals fall outside the stricter PRA affordability rules the upper lending limits may still accommodate the amount you wish to borrow meaning your current rental income may not have to change in order to secure funding.
Want to avoid raising rents on reliable tenants?
With the underwriting criteria changing, landlords are now faced with the predicament of having to raise rents on tenants, in order to meet the new borrowing criteria.
When faced with having to do this to your long standing tenants, you run the risk of having your tenant either leaving, or staying but struggling to make payments. This could affect your monthly income and could result in having no tenant.
With some 5-year fixed rate deals, the rental calculations used are outside the PRA’s recommended changes and as such, you may be able to obtain the borrowing amount you’re after, without the need to raise your rent.
Struggling to raise equity from your portfolio?
If you are looking to leverage equity in your portfolio, by borrowing at a high loan to value (LTV) but you can’t raise enough funds in order to fulfil your objectives these deals may help.
The 80% LTV deal we have featured here is particularly competitive, but you can borrow up to 85% LTV, however, this would have a much stricter lending criteria.
Five year fixed rates fall outside of the PRA changes and this is why the borrowing may give you the flexibility you need.
Avoid uncertainty with long term fixed repayments
With the market still in a transitional period due to the uncertainty surrounding sector legislation changes and Brexit, you could be looking to ensure you remain unaffected by possible future market fluctuations.
Fixed rate deals offer stability by guaranteeing your monthly repayment amount for a set period of time, so if rates rise within your initial rate period, you will remain unaffected. Do bear in mind though the rates can go in either direction – discuss your requirements and expectations with your advisor.
For full mortgage criteria and to discuss your eligibility, please get in touch.
This information should not be interpreted as financial advice. Mortgage and loan rates are subject to change.