Almost anyone can get a BTL mortgage. Even if you are a first-time buyer there are lenders who will grant you a loan although your choice of lender is heavily restricted. The underwriting assessment you will have to pass is also much tougher. In order to have the widest choice of lender and therefore be able to access the best deals in the market you will need to have a minimum income. This tends to be around the £25,000 per annum mark. Don’t worry if you can’t meet this requirement as there are lenders who don’t have a minimum income requirement, instead they will ‘sense check’ your application to ensure you have the ability to meet the mortgage payments during void periods where you don’t have a tenant.
Your Credit Score will also influence the lender and interest rate you can obtain. Don’t worry if your credit history isn’t the best, a good broker can usually find a lender who can assist. Lenders view BTL mortgages as higher risk than residential mortgages so tend to require a higher deposit than if you were buying a home to live in. Whether you have saved it, had it gifted from family or received an inheritance, a minimum deposit of 20-25% of the property purchase price is required. For properties with a very high rental potential, a deposit could be as low as 15% of the property purchase price. Due to the way in which lenders assess the maximum loan available, the greater your deposit, the larger the loan you will be able to secure.
As well as a bigger loan, the greater deposit you have as a percentage of the property purchase price, the lower the interest rates will be that are offered to you. This is because your mortgage loan is secured against the property. Basically, the greater deposit (or equity) you have in the property, the lower the risk to the lender that they will not get all of their money back if you could no longer afford to keep up the repayments on your mortgage.
In the current marketplace affordability is assessed using what is known as the Interest Rate Coverage formula. This is a simple calculation that indicates how much annual rent is required to support any given loan. In recent time this calculation has become tougher and the maximum loan for a given rental figure has been reduced.
Using a good broker can help you to maximise the loan available as different lenders use differing figures in their calculation which reflect your own tax position. A basic rate taxpayer will be able to secure a larger maximum loan than a higher rate taxpayer when buying in their own names. A good broker will know which lender to approach to secure you the loan you require. This interest coverage calculation will also differ between applications made in the applicants own name verses those made via the applicants own Limited Company. If you are thinking of getting a BTL mortgage, fill in the form below and arrange to speak to one of our advisers who can discuss all of your options with you.