What is the criteria for a buy to let mortgage?
If you require extra funds to secure a buy to let property investment, you will need a buy to let mortgage rather than a standard residential mortgage.
Here at North East Property Investment, a common question we get asked is ‘can I get a buy to let mortgage if I don’t own my own home’? And the answer is it can be more challenging, but certainly not impossible.
Getting a buy to let mortgage is not that dissimilar to an ordinary mortgage, but there are some key differences:
- A deposit for buy to let can be between 20-40% of the property’s value
- Fees are usually higher
- The majority are not regulated by the FSA (Financial Services Authority)
- They usually have higher interest rates
- Most are interest only, but can also be available on a repayment basis
Buy to let mortgage requirements vary depending on the specific lender. However, there are some general criteria that form part of the eligibility assessment. Essentially, anyone who meets a BTL lender’s affordability and eligibility requirements can qualify for a BTL mortgage and this is usually easier for established landlords compared to first time ones.
Part of the assessment will include the country in which you reside. It has become increasingly difficult for British Expats to secure a BTL mortgage as the number of lenders that offer expat mortgages are limited. Therefore, you will have more choice if you reside in the UK.
Whilst there are a very small number of lenders with no age restrictions, most consider age as a factor as part of their eligibility assessment. There are some who refuse to deal with borrows under 25 and there can also be restrictions on applications where the borrower is over 75.
Income and Affordability
Lenders tend to have a minimum income requirement for buy to let mortgages. This is usually £25,000, particularly in the case of a first-time landlord and proof of income will be required. However, some will accept lower or no income requirements.
When there are no income requirements, the assessment will be based on the property’s rental potential. Lenders use ICRs (Interest Cover Ratios) to calculate how much profit a landlord is likely to make.
Essentially, as with any mortgage, you simply need to prove that you can cover mortgage payments.
Your credit history will need to be assessed. Having a poor credit score, or indeed no credit history at all will require support from a specialist lender.
Compared to a residential mortgage, you can expect the minimum deposit for buy to let to be higher. This is typically between 25% and 40%. Much like standard residential mortgages, the larger the deposit is, the better the rate.
Again, varying across the lender spectrum, property usage can be a factor to be considered. Landlords looking to offer single assured short-term tenancies will be less likely to require a specialist lender than those offering holiday lets or multiple occupancy.
For seasoned landlords with large portfolios it can actually be more difficult to secure a BTL mortgage. Although lender dependent, there can be restrictions on the maximum number of properties in your portfolio, commonly up to 10.
Due to stricter rules introduced by BoE’s Prudential Regulation Authority, when applying for finance, portfolio landlords need to provide cash flow projections and business models for each property. If your property portfolio is already heavily mortgaged it can be challenging to obtain any extra funds.
At North East Property Investment, we work closely with intermediaries such as mortgage advisors, accountants and solicitors to provide a completely personalised solution for your individual requirements.