Limited Company Buy To Let Mortgage criteria is set to improve as Paragon have announced a significant revamp of their product range. Previously they had loaded Limited Company applications by 0.25% and had a tough rental calculation – this has all been improved.
It should be noted that HMO Buy To Let Mortgages will continue to be assessed under the old scheme of 130% at 7%. This is due to the increased risk these properties can post and the extra return that is usually earned by landlords who purchase and invest in these units. A unit failing to meet this criteria would likely be abnormally lacking in profit so the landlord should also be less interested in purchasing. This criteria applies regardless of whether the property is purchased through a Limited Company Mortgage or as individuals.
For all other types of Limited Company Mortgage, however, the 0.25% rate loading is gone as well as the rental calculation falling to a much more appealing 125% at 5%. This is in line with most of the regular products available to individual landlords and makes purchasing through a Company Vehicle significantly less difficult. Platform for example would often individuals 125% rental cover at 5% exactly in line with this new Paragon Limited Company Offering.
Paragon have demonstrated a significant advantage over many of the high street buy to let lenders by developing a good understanding of professional landlords and their requirements. In most ways lending to Limited Companies poses no greater risk to a lender that fully understands the risk involved and how to set up their proposition. Many lenders are missing out on a huge opportunity by leaving this market largely to two or three lenders (Paragon and Aldermore Bank for example) and will be closely watching Paragon’s business levels following this move.
Naturally this move has also been driven partly by the mood in the money markets – predictions of an April rise in base rate once seen as a certainty are starting to fade as economic data worsens in the UK. The housing market went on to extend losses for the year by falling 0.9% in December according to most indicators and this despite the usual strong showing in London. Without London included in the figures this highlights a continued tough market for property in the UK.
The expectation that rates will stay lower for longer mean that lenders such as Paragon don’t need to look for such high levels of rental cover to safely lend as landlords are more likely to be able to cover payments in these low interest rate periods. Landlords of course need to be careful that property they purchase is suitable for their long term plans and will continue to be profitable beyond this short term window, however.
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