PRA stress tests and the benefits of incorporation – With Kate Faulkner

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Malcolm and Kate

Further to our previous discussions around the withdrawal of interest relief, the additional 3% stamp duty and the impact of Brexit, we take a look at the effect of the Prudential Regulation Authority’s (PRA) stress tests and the benefits of incorporation.

Prudential regulation Authority Stress Tests

Since 2017, lenders have tougher rental cover tests, plus more questions for portfolio landlords.

The PRA has said that the minimum should be125%, but lenders should also take into account the borrowers future tax liabilities.

The Interest Cover Ratio is part of the basic affordability calculation that is typically applied to buy to let mortgage applications. The ICR is the minimum ratio between the expected rental income of the property and a notional interest rate

In reality the rent must cover at least 145% of the mortgage payment when the interest rate is at least 5.5%. This effectively means that every £100 of rent supports about £15,000 worth of borrowing.

There are some types of lending that these rules don't apply to. These are:

  • Mortgages for limited companies
  • Bridging lending
  • Commercial or semi-commercial property
  • Holiday lets
  • Any loans with a fixed term of five years or longer

How to secure finance for commercial mortgages

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How to secure finance for commercial mortgages Raising capital or arranging finance for a commercial mortgage can often be a total nightmare. Here are some of the common reasons why lenders might turn you down: Poor credit Lack of experience Lack of deposit Insufficient accounts Self - employed As one of the top UK Commercial Finance brokers, Brooklands Commercial Finance has access to the whole of the market, this includes high street banks, challenger banks as well as merchant banks to help you get commercial mortgages on the most favourable terms.

We can help with the following property types:

Doctors, Dentists and Vets Care Homes Restaurants, Takeaways, Cafes and Public Houses Shops and Post offices Garages Offices Semi Commercial units Industrial units Warehouses Property Portfolio’s Short Leaseholds


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Lending to Landlords and Property Developers to Refurbish, Extend or Convert property has soared over the past year. Finance has become more readily accessible and flexible in this post-recession era.

Whilst there is still a dire shortage of houses in this country, conversions and refurbishments are essential to making better use of the existing stock. Lloyds earlier this year released figures showing that over 14 million people have either had major work done to their current property or to carry out some in the next 12 months.

Many of our landlord clients have taken the opportunity to purchase properties that are inhabitable and to refurbish them and then either sell them to for a profit or retain them and gain an enhanced rental income.
A number of our landlord and developer clients have also taken advantage of the Permitted Developments Rights to convert commercial property into residential, often in the form of either flats or HMO’s.
The major benefits to landlords of embracing refurbishments or conversions are:

  • Released profits via a sale
  • Retain properties and enjoy a capital gain and enhanced rental income

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