Buy to let mortgage on portfolio not passing income stress test

This was a complicated case. Our client needed to reorganise their exit from a bridging loan with two refinances: a buy to let mortgage on the previous family home that wasn’t finding a buyer (below), and a residential mortgage arranged on their new home over a longer term than many lenders will consider for a late-40s borrower (more details here). 

The Scenario

A year previously we had arranged a 12-month bridging loan for our client: they had an opportunity to buy a very desirable family home at substantial discount, but their current home wasn’t on the market yet. The bridge was secured by a second charge on the previous family home, and a first charge against the newly purchased property. Their agreed exit was to be the sale of the former family home, valued at £800K.

When it came to the nine-month review point, our client was still confident that a sale could be achieved: she’s an experienced landlord, as well being the managing director of a care home.

But a buyer couldn't be found, and our client contacted us with just one month left to go on the loan term.

We needed to find some new options quickly, and proposed that our client let out the property that was proving hard to sell, refinancing with a buy to let mortgage.

There were a number of tricky issues that needed to be resolved.

Our client already owned three rental properties, so adding this fourth one to her book meant that she’s now classed as a portfolio landlord. Under the new whole-portfolio stress test requirements introduced by the Prudential Regulation Authority in 2017, the viability of each property in her portfolio needs to be established (not just the profitability of the new property she was seeking finance for).

The BTL mortgages she already had in place were all repayment mortgages (our client plans to have them cleared by the time her children finish university). She tops up the shortfall in rental income each month from her salary. But the portfolio would fail every standard stress test.

The Solution

We sourced a lender for the BTL mortgage who was willing to test her portfolio as though the mortgages were all interest-only – which it would be perfectly feasible to arrange on all the properties.

The assumed lower outgoings allowed the portfolio to pass the stress test. The BTL lending was secured at a good market rate for 5 years – on a deal most lenders would have said no to.

More about our buy to let mortgage service