Tight rent remo? This alternative to PTs could relieve the stress

An alternative choice for landlords

In short, a pound-for-pound remortgage (AKA the ‘£4£ remo’) is a BTL remortgage with no additional borrowing – so it is pound-for-pound the same loan amount, so some lenders are able to offer more favourable underwriting terms for it, such as less onerous rental cover requirements.

It means that where the landlord borrower is coming to the end of their fixed rate, but is struggling to show the rental income required at typical stress rates, they still have an option to remortgage instead of just accepting a PT, or reverting to a higher reversion rate.

In some cases, it is hoped that this may also reduce the need for the landlord to have to increase the rent to achieve the rental cover.

Product Transfers, which made up a huge 77% of the remortgage market in 2023, are often offered by lenders to their existing borrowers with minimal documentation required and typically pay the broker less.

By offering pound-for-pound terms on a remortgage, lenders are opening up an opportunity for a landlord whose rental income might not cover the loan at the new higher average interest rates under normal underwriting criteria.

Example:

• A higher rate tax paying landlord has a rental income of £1,200, which was sufficient to cover their loan of £165,000 last time at the low rates of five years ago, but now that rate is ending.
• The landlord would like to be free to reconsider their position in a few years so wants a shorter-term fixed rate.
• The rental cover is not enough to cover the ICR requirement for today’s 2-year fixed rates with most lenders – the most they will offer is 127,000, so it initially appeared that the landlord’s only choice is a Product Transfer from their existing lender.
• However, at Foundation Home Loans, because this is a pound-for-pound remortgage with no additional borrowing, the stress rate of just 125% is applicable regardless of the tax status of the landlord, and furthermore, the stress rate is calculated at pay rate, even though the product is only fixed for two years. This means that the maximum loan available on that rent is £170,000*.

*(example rate used 6.70%; please note this is an example rate and may not be available.)

Terms vary from lender to lender, but at Foundation, as long as they are remortgaging the same loan amount £4£ (not asking for any additional borrowing) this criteria allows us to assess the rental income at the low ICR of just 125%, regardless of the landlord's low or high tax payer status, and also the stress rate applied is the pay rate - including for sub-5 year rates. For us, this underwriting is available on a specific range of products.

Who might you help with this?

These products are particularly relevant now at a time when many landlords would like to consider two-year products to allow themselves flexibility to reassess their situation in a few years, but had found the rental cover requirements for shorter-term rates to be typically higher than their five-year-plus equivalents.

Also, at a time when rates have been going up across the market, there are often more landlords finding their deals not fitting, or for Consumer buy to let landlords – if they are not looking to capital raise.

When rental income initially appears a tight cover for the rent, there are alternatives for intermediaries to explore before turning to a PT. Landlords may believe that they have no choice but with pound-for-pound products like this, it may be possible to access better rates or terms than their existing lender is offering.

FOR INTERMEDIARIES ONLY