Keystone imposes stricter buy-to-let stress tests on individuals
The lender will use a formula of 145% at pay rate or a notional rate of 5.25%, whichever is higher, for term trackers and three-year fixed rates, while the pay rate will be applied for borrowers on a five-year fixed rate.
For limited companies using term trackers and three-year fixed rates, stress tests will remain at 125% of pay rate or a notional rate of 5.25%, whichever is higher, with the pay rate applied to five-year fixed rates.
The changes bear in mind proposals for stricter buy-to-let underwriting standards set out in a consultation by the Prudential Regulation Authority (PRA) and forthcoming caps on finance costs and amendments to taxation in the sector.
David Whittaker, managing director of Keystone, said the lender was keen to demonstrate that it is taking affordability seriously.
“Crucially, individual borrowers who can show that they are basic rate tax payers now – and are likely to be in future – can ask for the lower stress test to be applied. These applications will be considered on a case-by-case basis. Our underwriters will assess the individual’s circumstances and portfolios very carefully and ask to see the last two years’ tax returns to prove that income is within the lower tax bracket limits.
“The stress test for limited company applicants will remain at 125% of pay rate because corporate vehicles will not be financially affected by the new tax relief restrictions,” he added.