EXPERT: Landlords buying via personal mortgages facing more ‘stress testing’

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Landlords buying properties via personal buy-to-let mortgages are facing greater ‘stress testing’ of their affordability as economic jitters unsettle lenders, it has been revealed.

Financial expert Louisa Sedgwick (main picture) from broker Paragaon says that, while landlords applying for mortgages through limited companies are often ‘stressed’ at 125%, those applying as individuals must meet a higher 145% figure.

A stress test normally involves the lender assessing a landlord’s rental income in relation to the mortgage payment, and taking into account various variables such as likely changes in rent and interest rates.

Sedgwick says this, along with the ability of limited company landlords to offset mortgage interest against tax, means those buying properties through company structures is on the rise, with a majority of brokers expecting this to continue over the next 12 months.

Best option

She adds: “While limited company structures may not be the best option for every landlord and we’d always recommend seeking professional, independent advice, these advantages are becoming even more evident in the current market where the unsettled economy has made it necessary for lenders to tighten up stress testing.

“This is why I think the brokers we spoke to have got it spot on and we’ll continue to see a shift towards more limited company lending.”

Further Paragon research found that a profitable full-time income is made by 43% of landlords whose portfolios are owned within a limited company structure, compared to 26% amongst investors who hold properties in their personal names.

And as LandlordZONE reported recently, those seeking to remortgage are also facing stress testing problems.

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