Getting a buy to let mortgage is easy right? All you need is a good credit history, a minimum of 20% deposit and a rental income or proposed rental income which is 125% of the new mortgage payment.
Well no, not anymore, as the market has changed, with many banks and building societies scrutinising applications in a similar way to a “regulated” owner occupier mortgage.
Rental cover calculations (the proportion by which the rent covers mortgage interest) have also become much more complex and can differ dramatically both between lenders and even within individual lenders for different fixed rate terms. For example, those borrowing on a fixed rate of 5 years or more can often now borrow more than those clients choosing a 2 year fixed rate.
Once this hurdle has been cleared and an in principle mortgage level established (which in some cases may be much lower than previously), an in depth review of the borrower’s finances is undertaken looking at areas such as: –
Salary or self-employed income
Personal borrowing levels
Residential mortgage balance and payment
Review of other buy to let borrowings
Overall reliance on total rental income received
With further changes due later in 2017 for landlords with an existing portfolio now is the time to review your mortgage options.
Confused? As ever changes to mortgage regulation can present opportunities as well as threats. In many areas lenders requirements can vary significantly, such as some of the 5 year fixed rate calculations now being used may allow higher borrowing level than under the old rules. So far this year we have already helped landlords with 3-4 property portfolios to re-mortgage and fix their interest rate for 5 years which will save them £50,000 and £20,000 respectively against the variable rates that they previously paid.
Paul Hardingham and Tony Ibson are Mortgage and Protection Advisers at Innovate Mortgages and Loans. Both have over 20 years of experience advising individuals and businesses across the North East of England. They can be contacted for bespoke advice at paul@innovateml.co.uk or tony@innovateml.co.uk or call 0191 223 3514.
