THE PROPERTY FILTER TAKE
Foundation cut its limited edition two-year buy-to-let remortgage fix to 4.69%, Mortgage Solutions reported on 23 October, and added a pound-for-pound remortgage at 5.24% where rent must cover 125% of the payment at the pay rate.
On a £150,000 balance, that test needs £818.75 a month in rent, against £1,312.25 under the lender's general two-year rule for a higher-rate taxpayer at the same rate.
If your rent is tight under a stressed rate, consider asking your broker whether the pound-for-pound product is still available and how your case scores on it.
Foundation has cut its limited edition buy-to-let remortgage two-year fix by 0.3% to 4.69%, with a 4% fee, according to Mortgage Solutions (23 October). That is 15 days after it launched at 4.99%. But here's the angle: the new product in the same update, a pound-for-pound remortgage at 5.24%, has an easier rent test than Foundation's usual two-year rule.
What has Foundation changed on its buy-to-let remortgage range?
On 8 October, Foundation released two limited edition BTL (buy-to-let) remortgage-only products under its F1 criteria. Both sit at 75% LTV (loan to value, the loan as a share of the property's value), Mortgage Solutions reported. F1 is the lender's tier for borrowers with an almost clean credit history, as Financial Reporter has described it. The two-year fix came at 4.99% with a 4% fee, one free standard valuation, £250 cashback and no application fee. A five-year version came at 5.84% with a 5% fee.
The 23 October update took the two-year fix to 4.69%. It did not mention the five-year limited edition product. Mortgage Solutions also reported a new F1 pound-for-pound remortgage-only two-year fix at 5.24% to 75% LTV, with a 4% fee. Pound-for-pound means refinancing without borrowing more; Foundation designed its July version for landlords "not looking to extend their borrowing" (Mortgage Solutions, 2 July).
These are the latest published terms I could find, dated 23 October. You may wish to check availability with your broker before you plan around either rate.
Where is the opportunity in the stress test?
The pound-for-pound product has an ICR (interest coverage ratio, how far the rent must exceed the mortgage payment) of 125% for all applicants. Cases are stressed at the pay rate (Mortgage Solutions, 23 October). Compare that with Foundation's general buy-to-let rule. Fixes shorter than five years are stressed at the higher of 6% or the pay rate plus 2%, and higher-rate taxpayers need 145%.
Here's the margin on this, worked on interest alone for a £150,000 balance. At 5.24% and 125%, the rent needed is £818.75 a month. Apply the general rule at the same pay rate, so 7.24% and 145%, and it is £1,312.25. You can run your own figures through our free BTL stress test calculator.
The trade-off is cost. On £150,000, 5.24% is £655 a month in interest against £586.25 at 4.69%, a gap of £68.75. Both carry a 4% fee, which is £6,000 on that balance. The 23 October report did not say how the 4.69% product is stress-tested, so that is a question for your broker. For more on working with lenders and brokers, see our negotiation and finance hub.
How does SDKA's £250,000 title indemnity change a purchase?
SDKA, a specialist bridging lender according to its own website, has raised the maximum loan for its title indemnity insurance on residential BTL purchases to £250,000 (Mortgage Solutions, 8 October). Title indemnity insurance is cover for risks in a property's legal title, which SDKA said include matters relating to searches and restrictive covenants. SDKA started with a £150,000 limit, according to the same report.
The policy costs £392 on loans up to £250,000, SDKA said, against a typical £300-500 for a standard search pack. SDKA said additional searches are usually required; it gave examples such as Lack of Planning at £175 or Restrictive Covenants at £115.
Speed is the bigger angle if you're quick on purchases. SDKA said a typical local search (the council records check) takes around 2-6 weeks, and its policy removes that requirement. For how a purchase like this fits a wider plan, see our property investment strategies hub.
Key takeaways
Foundation's limited edition two-year buy-to-let remortgage fix fell by 0.3% to 4.69% with a 4% fee, as reported on 23 October, 15 days after the 4.99% launch was reported.
Its new pound-for-pound remortgage at 5.24% to 75% LTV requires rent to cover 125% of the payment at the pay rate for all applicants.
On a £150,000 balance, that test needs £818.75 a month in rent, against £1,312.25 under Foundation's general two-year rule for a higher-rate taxpayer at the same pay rate.
SDKA now offers title indemnity insurance on residential BTL purchase loans up to £250,000, at £392 a policy.
The 23 October terms are the latest published I found, so consider confirming availability with your broker.
Frequently asked questions
What is a pound-for-pound remortgage?
What does F1 mean at Foundation?
Is the 4.69% rate still available?
What does SDKA's title indemnity insurance cost?
