Magellan's new BTL affordability calculator
Magellan Homeloans, has developed a unique online tool to help reduce some of the complexity for brokers in finding suitable funding options for Buy to Let (BTL) clients.
Using a common sense approach to an industry problem, Magellan has developed the tool to enable a broker to input basic borrowing requirements and obtain an immediate snapshot of the maximum loan available across Magellan’s entire product suite including 2 and 5 year fixed rates, a Libor-Tracker and multiple fee options. The calculator also flags circumstances where the borrowers may be able to borrow a greater amount if they apply through a limited company, particularly important for BTL purchases where a conversation with the clients’ accountant or tax adviser could be invaluable.
Simon Read, Managing Director explains, “Our Partners were asking for a simple tool to quickly understand how much a BTL client could borrow, whatever their situation and structure. Buy to Let is complicated so by using our expertise in this market we can offer simple answers to complex situations and help brokers better understand the borrowing options open to their BTL clients.”
The calculator is straightforward to understand and simple to use. It’s easily accessible online and requires minimal input.
Read continues: “BTL affordability tests are not necessarily easy to ascertain as they are made up of two parts; the Stressed Interest Rate and the Interest Cover Ratio (ICR), with the calculations not only varying from lender to lender but also product to product. By having a simple way of illustrating them, brokers can become more accustomed to their impact and increase understanding and knowledge. Our improved BTL calculator hasn’t come about because of particularly new technology but has been driven by customer need, customer feedback and our desire to make life that bit easier for our brokers. It’s about the art of the possible.”
Income Cover Ratio (ICR) tests ensure the expected rental income can cover the loan repayment whilst also allowing for ancillary costs relating to the property such as management fees, utilities and maintenance, but also a borrowers income tax liability. Unlike most BTL lenders who penalise those applying for a BTL loan in their personal names by calculating the ICR by taking the highest tax rate of the joint borrowers, Magellan’s calculation reflects the reality of each individual’s personal tax position. This tax position is then blended to optimise the performance of each client’s property share, again maximising affordability.
Read continues: “I believe blended ICRs are the future of the BTL sector as most BTL lenders are currently penalising joint borrowers unnecessarily. Our approach proves this doesn’t have to be the case and empowers brokers with another way to help joint borrowers optimise their borrowing position.”