A couple of years ago buy to let lenders introduced the stress test, encouraged to do so by the Bank of England and The CML. This has made the journey to securing finance and mortgages very interesting!
On the face of it this is a good idea. Mortgage lending needs to be kept under control as repossessions and bad portfolios damage much more than the public perception of the Property industry! The Stress Test however leaves many borrowers confused about how it’s calculated, and what it’s actually for.
So in this video I’ll explain all.
I’ve even sub-titled it in case you need to watch it with the sound down! It’s about 5 mins long so grab a cuppa.
Why is the Stress Test particularly relevant to us?
The Stress Test limits the amount of finance that a Buy to Let lender will lend to an individual investor, therefore setting the realistic top end of a property’s value when it comes to buy! This has an effect especially if you want to do a more creative deal and structure the purchase and potential refurbishment in order to get all or some of your money back out on when refinancing/raising a mortgage.
If there is a scale with a range of values where that process works, the stress test sets the top end of that scale. Increasingly we are also seeing a bias against “portfolio landlords” where the Stress Test is determining there should be a lower threshold of finance available than in recent years. Whether or not this has an effect positively or negatively down the line for the housing market as a whole, it certainly is making it more difficult for professionals to invest.
For more information on this topic, please check out my YouTube Channel, the Property Teacher at: https://www.youtube.com/channel/UCeq0_g2-gcUFNyiLjdTk1CA/featured