Buy To Let Mortgage holidays - Could extending have an adverse effect on future borrowing?
Liam Keighley • June 3, 2020
Liam Keighley, Director of Laybourne – Specialists in Property Finance gives us his expert opinion on the matter
In the specialist buy to let market where we look at portfolio landlords, underwriters primarily assess not just the rental received on the asset being mortgaged, but the landlord's wider portfolio, which they stress test to make sure the borrower can cope with any rate changes that might happen elsewhere. When doing this they assess the borrowers’ ability to cope with any rental voids that might happen and therefore impact the ability to service the loan they are currently applying for.
Although a mortgage holiday won’t impact an individual’s credit rating, as the payments aren’t missed, it’s our opinion that any lender that uses a manual underwriting process will see that the client was unable to cover a rental void on their portfolio and is therefore a risk to lend to.
We have seen applications declined where clients were re-mortgaging their properties but have taken a payment holiday. A lender cannot lend money to an individual if they are showing that they don’t have the ability to repay their current commitments as the FCA would class this as irresponsible lending.
We also have to be mindful of those landlords that have taken payment holidays with multiple lenders and then still received full rents. Lenders have looked at some applications and do not wish to support the clients’ applications as they have not paid their contractual sum despite having the income to do so.
Our advice is to only take a payment holiday when you have rental voids, no income to cover the payments and you have no intention of re-mortgaging or applying for buy to let mortgages in the future.
The chancellor assured us all that it would not impact your credit rating but never said it wouldn’t impact your ability to borrow. A credit rating is just one element to a borrowers’ ability to obtain mortgages.
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