BM Solutions will apply the Prudential Regulation Authority’s 5.5% stress test on all buy-to-let mortgages – including those fixed for more than five years.
The PRA had added an exemption so lenders wouldn’t have to apply the stress test on fixed rates over five years – an exemption BM Solutions has chosen to ignore.
At the same time the lender has extended the maximum age at the end of the mortgage term to 80, providing applicants apply by the time they are 75.
The changes will apply from Monday 21 November, as detailed in a note sent to brokers today.
The note read: “From 21 November we will no longer operate a tiered stress rate structure and all buy-to-let applications, including those on 5-year fixed rate products will be assessed using a notional/stress rate of 5.5%.”
The 5-year fixed rate exemption has come in for some flack, as mortgage broker Lee Grandin, owner of B2B firm Lend2Landlord and buy-to-let brokerage Landlord Mortgages, branded it a “loophole” at the start of the month.
He reckoned the exemption could result in toxic borrowing, and he now feels validated by today’s news.
He said: “This suggests the 5-year fixed rate concession is irrelevant and I think BM Solutions has taken the best view going forward.
“You’ve giving lenders leeway when it’s not needed and after five years landlords could struggle to refinance.”
The lender is currently emailing all of its buy-to-let clients informing them of the impending tax changes to allow them to take appropriate action, such as seeking independent tax advice.
The PRA’s interest coverage ratio tests and interest rate affordability stress tests will come into force on 1 January 2017 and the rest on 30 September 2017.