BTL cases
Profit rate used
| Fixed term | Stress test rate |
|---|---|
| Less than 5 years | Profit rate + 2% or 5.5% (whichever is lower) |
| 5 years or more | Profit rate |
Finance service coverage ratio (FSCR)
Rent must cover profit payments by at least 1.5 times (if using gross rental). If it’s more favourable, and at the underwriters discretion, a multiple of 1.25 of net rental may be used. Net rental is 75% of gross rental and takes into consideration letting agents fees, void periods and any tax due dependent upon the client(s) tax residency.
Top slicing
We will consider 25% of clients surplus net disposable income and add this to the rental, to be able to meet the FSCR.
Surplus net disposal income is verified by deducting the following from allowable income:
| Expenditure | Description |
|---|---|
| Basic essential expenditure | The Basic essential expenditure of a customer’s household as disclosed by the customer in the property finance application and evidenced in the bank statements. This expenditure consists of housekeeping (food and washing); gas, electricity, and other heating; water; telephone; council tax; buildings insurance; ground rent and service charge for leasehold properties; and essential travel (including to work or school). |
| Basic quality of living costs | The Basic quality of living costs as disclosed by the customer in the property finance application and evidenced in the bank statements. This expenditure consists of clothing, basic recreation, personal goods, school/childcare fees, and any maintenance payments. |
| Committed expenditure | The Committed expenditure as disclosed in the property finance application is verified to the credit report with payments evidenced in the bank statements. Committed expenditure include mortgage payments (from all the obligors’ properties), personal finance and credit cards. These are commitments that will continue after the finance is provided. |