Getting a buy to let mortgage is easy right? All you need is a good credit history, a minimum of 20-25% deposit and a rental income or proposed rental income which is 125% of the new mortgage payment
Well no, not anymore, as the market is now very different, with many banks and building societies scrutinising applications in a similar way to “regulated” owner occupier mortgages. Firstly, consideration needs to be given over the structure of how to buy a buy to let property. Applicants can either buy in a Limited Company name or as an individual and in many ways, Limited Company applications now offer a number of tax advantages, However, there can also potentially be benefits to buying any new property in the individual name of the person with the lower “earned” income or ideally the name of a non-working partner. Most lenders require the mortgage applicant to have a certain level of earned income for example £25,000 as a minimum. However, this is not always the case as some lenders do not require a minimum level of earned / background income at all (other lending criteria will apply). Consequently, in a scenario where a higher rate tax payer and a non-earning partner are considering a new investment, they could secure significant income tax advantages if the property and mortgage can be secured in the sole name of the non-tax payer. In this case, buying in an individual name may be more beneficial. In terms of how much can be borrowed, rental cover calculations (the proportion by which the rent covers mortgage interest) have also become much more complex and differ between Limited Company applications and individual applications. They can also differ dramatically between lenders and over different fixed rate terms. For example, those borrowing on a fixed rate of five years or more can often now borrow more than those clients choosing a two year fixed rate. Similarly, those buying through a Limited Company can often borrow more than those buying in an individual name. And as a final point, anyone owning four or more mortgaged buy to let properties (either in a Limited Company or individual name) is now classed as a “Portfolio Landlord” which creates further complications! We are not tax advisors and always advise all borrowers to seek tax advice prior to chatting through the mortgage options. But given it is now such a complex area, a full review of underlying circumstances is most definitely needed – we can do this on an initial no obligation basis, so what have you got to lose? Once all of these hurdles have been cleared and an in principle mortgage level established (which in some cases may be lower than a few years ago), an in depth review of the borrowers finances is undertaken by the mortgage lender 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. Confused? We can understand why, but as ever, changes to mortgage regulation can present opportunities as well as threats and independent mortgage advice in this market is now more important than even before.
