Btl loan sizes contract by £58,000 as stress rates increase

Btl loan

According to analysis from Mortgage Broker Tools, the average buy-to-let loan size now for a borrower with £750 per calendar month in rent stands at £106,000

Loan sizes for buy-to-let borrowers have contracted by as much as £58,000 over the past six months as stress rates have increased, eliminating the benefit of stressing rental income at pay rate.

According to analysis from Mortgage Broker Tools (MBT), the average buy-to-let loan size now for a borrower with £750 per calendar month in rent stands at £106,000. This is based on the standard stress calculation of 125 per cent at 6.79 per cent.

Based on a standard calculation six months ago, the average buy-to-let loan size was £131,000 and the stress calculation was 125 per cent at 5.5 per cent.

The current average available loan size is also down compared to six months ago if the stress calculation was based on pay rate, which at the time was 125 per cent was 3.69 per cent. The loan size would then come to £195,000.

The difference becomes more pronounced if borrowers have higher rents. Those with £1,250 per calendar month in rent, on a standard stress calculation of 125 per cent at 5.5 per cent, would have had access to a loan of £218,000. Now the loan size is £177,000 based on stress calculation of 125 per cent at 6.79 per cent.

Based on the pay rate of 125 per cent at 3.69 per cent, the average loan size for £1,250 rent would have been £325,000 six months ago.

For borrowers with £1,750 per calendar month in rent, the average loan size would have been £305,000 six months ago based on stress calculation was 125 per cent at 5.5 per cent. It is now £247,000 when stressed at 125 per cent at 6.79 per cent.

On pay rate six months ago, borrowers could have accessed a loan size of up to £455,000. The calculation is 125 per cent at 3.69 per cent.

Tanya Toumadj, CEO at MBT, said that it was “no surprise” loan sizes had fallen in recent months as rate rises have “significantly impacted stress tests”.

She continued: However, our data analysis has revealed the scale of change, particularly as the benefits of stressing rental income at the pay rate of the mortgage have now been eclipsed but the size of the rate increases.

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