Unfortunately for buy-to-let investors, rental income does not move in line with the Bank of England base rate. With interest rates rising again, landlords will see the difference between their rental income and mortgage payments reducing and some may already be supplementing the rental to cover the interest. It also makes it harder to meet lenders’ rental calculations for prospective purchases.
Lenders have for some time been responding by relaxing rental criteria to help fulfil investors’ requirements. GMAC has been one of the lenders offering more flexible criteria with a choice of rental assessments available for varying fees. Now it has launched a three-year tracker which it claims will force rivals to follow suit.
The initial rate is 5.24 per cent and it then reverts to a tracker at 0.99 per cent above base rate for the remainder of the term. Available to 85 per cent loan to value and carrying a fee of 1,495, the rental assessment is calculated at 100 per cent of the initial pay rate. This is one of the lowest requirements on the market.
The big downside, other than the chunky fee, is that it carries early repayment charges for two years beyond the three-year tracker period. The average rate over the five years is reasonable but the danger is those maxing their borrowing face the virtual certainty that repayments will outstrip rental income after the three-year incentive period. It remains to be seen if there will be an appetite for the very low rental calculation at the expense of what will be construed as an extended ERC.
David Hollingworth is head of communications at London & Country.