Landlords struggling to make the maths work on a new mortgage are being offered the chance to qualify for the easier rules a five-year fixed rate delivers - but without locking in for that full period.

Strict rules limiting the amount landlords could borrow on a buy-to-let mortgage came in almost two years ago, but now one lender has come up with a product that eases the amount of rent a landlord must earn without locking them in for five years.

Since 2017 landlords have had to choose between committing to a fixed term mortgage deal for at least five years or facing stringent affordability rules which limit how much they can borrow in relation to their rental income.

But a new five-year fix from lender Foundation Home Loans allows borrowers to leave after three years without facing any early repayment charges - effectively giving them the flexibility of a three-year fix without the tougher affordability rules.

The deal comes in two forms, up to 65% loan-to-value at 3.30% and up to 75% loan-to-value at 3.55% - both quite expensive compared to existing deals on the market.

So who might this deal be right for, and is it worth the extra cost?

Five-year fixes have become one of the go-to mortgage types for landlords in recent years as less stringent affordability tests on these deals mean borrowers can take out larger loans.

A lender assesses whether a potential borrower is suitable for a loan by putting them through what is called a 'stress test'.

As part of this the borrower has to be able to rent out the property for a minimum amount, which is proportionate to the size of the loan taken.

The rules, brought in by the Bank of England two years ago, force lenders to require more rental income cover than they did previously to qualify for a mortgage.

Shorter term mortgages are now only approved if the landlord can demonstrate their rental income would cover their mortgage payment by a ratio of 145%, in the event that their mortgage rate went up to 5.5%.

But, the Bank of England's stricter rental income rules only apply to mortgage deals that are fixed for fewer than five years - the more onerous income requirements don't apply when mortgage payments are fixed for five years or longer.

As there are no early repayment charges after three years on Foundation's new deals, they provide the flexibility of a shorter-term fix, but because they are five-year deals, they would also mean landlords don't need to pass the more onerous stress tests.


If you would like to know more about a new or re-mortgage please do make contact and one of our independent advisers will be happy to assist.