The new stress test feature is an essential tool for evaluating potential property investments. This guide will help you navigate and use this feature effectively:
Locating the Stress Test Feature:
Access your Property Filter account.
Navigate to the 'Lead Generator' section.
Select a lead generator (e.g., Liverpool Buy-to-Let).
Choose a property and click on 'Show Details'.
Scroll down to find the 'Buy-to-Let Stress Test' section.
Understanding the Stress Test Parameters:
Loan to Value (LTV): This represents the mortgage size compared to the property value. Typically, this is set at 75% (25% deposit).
Interest Rate: Input the interest rate applicable to your loan. Confirm with your broker for accuracy.
Interest Cover Ratio (ICR): This ratio compares the rent to the mortgage. For example, 125% ICR means that the rent should be 125% of the mortgage payment, providing a buffer.
Purchase Price: Auto-populated from the property details but can be adjusted manually.
Estimated Rental Income: Automatically calculated based on average rents in the area for similar properties.
Using the Stress Test:
The tool calculates the minimum rental income needed to pass the stress test based on the purchase price and the maximum offer you can make based on the current market rent.
Adjust the ICR or interest rate as needed for different scenarios.
For HMOs, modify the purchase price to reflect the Gross Development Value (GDV) and adjust the rental income to account for the higher income from multiple tenants.
For service accommodation, lenders may assess the viability based on a buy-to-let fallback, so ensure your figures work under these conditions as well.
Practical Applications:
Assess if a property passes the lender's stress test quickly.
Use it as a negotiation tool with sellers or agents by demonstrating your maximum offer based on lending constraints.
Experiment with different asking prices and rental incomes to understand the property's financial feasibility.
Remember, the stress test is a powerful calculator to ensure your property meets bank requirements. Explore it with properties you're interested in, and adjust the figures to see if they pass the stress test based on the ICR.