The way that Foundation Home Loans calculate rental cover for applications with products with an initial rate less than 5 years has changed.
Rental cover requirements for applications on 5-year products have not changed; these are still calculated these at the pay rate. However, for short-term rates such as two-year fixes and two-year discounts, the loan amount must now be covered by the higher of
- 5.5%, or
- Their reversion rate of BBR+4.99% (so currently 7.24%), or
- the pay rate +2%.
5-year fixed-rate mortgages are calculated using the pay rate. Other rate types are calculated using the higher of 5.5%, the reversion rate, or pay rate+2%.
Why?
The change has been made in line with regulations about buy to let affordability in a changing rate environment.
What about pipeline cases?
The stress rates are held at the product level so DIPs keyed on previous products will maintain their existing calculation. But please be aware that pipeline cases that switch to new products will be assessed on the updated portfolio and ICR stress rate values.
When?
The change is already in place and new wording is now on the website and all of their broker collateral. However, the buy-to-let max loan size Buy to Let Calculator is still under development. Therefore, the BTL website calculator currently can only give an indicative loan amount using 5-year fixed rates. For a maximum loan indication using shorter-term rates e.g. 2-year rates, brokers are directed to please contact their Foundation RAM or the iBDM team.
The Broker portal is working correctly for DIPs and FMAs so brokers can also obtain a DIP using any rate type on the broker portal.