The Debt-Service Coverage Ratio (DSCR) is a financial metric that shows a property's ability to cover its debt obligations. It is crucial for lenders as it helps assess the property's ability to generate enough income to repay debts, indicating the property's financial health and risk level.
Commercial Finance Director Miles Wallace explains that while there are challenges in the sector even the most experienced of landlords can benefit from working with an experienced finance broker to overcome this problem.
Portfolio Landlords often face challenges when it comes to refinancing their investment properties. One of the key factors for lenders in the refinancing process is the debt service coverage ratio (DSCR).
DSCR is a financial ratio that lenders use to measures a property's ability to generate enough cash flow to cover its running costs and finance payments.
Lenders view DSCR as an important risk metric. A property- or a portfolio of properties- with consistently high DSCR is perceived as lower risk for a loan. So, maintaining a solid ratio is key to securing favourable mortgage terms over time.
Right now, following a period of relatively low interest rates, we are seeing a number of portfolio landlords coming to the end of their preferential fixed rate deals and having to refinance with much higher mortgage rates, which makes their borrowing costs higher, their net yield much lower and gives them a poorer DSCR.
Typically, those that have held their stock for ten years have relatively low gearing across their portfolio because they have enjoyed a cycle of low borrowing rates- but, sadly, it's these landlords that are being hit hardest.