Commercial mortgages Ican beat new affordability tests

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From January 2017, new regulations mean that more stringent affordability tests will be introduced for commercial mortgages, but not all current commercial mortgage applications will be subject to these stricter tests, said The Telegraph in December 2016.

After December 31st 2016, new affordability tests will be put in place designed to make sure that mortgage payments can be made using rents received on commercial property, even if interest rates increase to 5.5% in the future.

Many lenders will be looking for landlords to receive 145% of the mortgage repayment value in rents, as opposed to the 125% common at the moment. Some larger lenders are already requiring rents to cover 145%, but some smaller lenders will not change their affordability rules until the new regulations start in the new year.

Although lending criteria are less stringent than they will be in 2017, future remortgaging could be an issue as it will be subject to the stricter affordability tests. Landlords borrowing under the present affordability tests may not pass the new tests.

Many landlords take out fixed-rate mortgages for around two years. If they take out a longer-term fixed rate for five years or more, then the Bank of England has said that less severe affordability conditions can be applied

Some lenders apply less strict conditions when dealing with commercial mortgages for limited companies. There can be complications if a landlord wants to transfer ownership of property to a limited company, but new buy-to-let house purchases for companies are easier to arrange.

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