Blended ICR: Get more bang for your clients’ buck

I think we are now all aware that the increases in buy-to-let (BTL) mortgage rates over recent months have impacted borrowers’ affordability, as lenders use an ICR to determine the maximum amount a client can borrow. Whilst rates have started to come down, we are some way off those that could have been enjoyed not very long ago. This has led lenders (including CHL Mortgages) to innovate by pricing mortgages slightly differently, for example offering a lower rate in return for a higher fee, which helps to drive the maximum borrowing amount upwards. However, more can be done.

At CHL Mortgages, we have introduced a ‘blended’ ICR approach, which applicants in different tax bandings can work to their advantage. Consider the following scenario:

A married couple wish to raise a mortgage on their jointly owned BTL property, which they own as ‘joint tenants’. One is a higher-rate taxpayer, and the other is a basic-rate taxpayer. CHL Mortgages are able to ‘blend’ the higher-rate stress of 140% with the 125% used for basic-rate taxpayers. This allows our married couple to stress their BTL mortgage at 132.5%, instead of 140%.

This means, if these borrowers were to take out our 5-year fixed rate of 5.53% without blending the ICR, and their property yielded a monthly rental of £1,500, they would have been able to borrow a maximum of £232,498 as it would be based solely on the higher rate stress of 140%.   However, by blending the ICR, the same scenario would allow a mortgage advance of £245,658, stressed at 132.5% at 5.53%. A difference of over £13,000!

Of course, if your clients own (or purchase) their property as ‘tenants in common’, with the higher-rate taxpayer owning a smaller percentage of the property, this increase is even more substantial. Where the higher-rate taxpayer owns 10% of the property, and the lower-rate taxpayer owns 90% (and they receive the rent in the same proportion), their borrowing potential can be calculated at an ICR of 126.5% at 5.53%, giving them a maximum borrowing of £257,310, an increaseof £24,812 abovethe unblended maximum borrowing. Test it out for yourself by downloading our Blended ICR Affordability calculator held on our Documents page. If you’ve got a case where your clients need more bang for their buck, contact your BDM today.