Landlord Mortgage – Key Definitions
One of the key aspects for a landlord looking at getting a buy-to-let mortgage is to find a BTL product where the numbers fit. This is potentially the first stumbling block that a landlord faces in securing buy-to-let finance. The key figures for a landlord seeking a BTL mortgage is: the rental cover, the loan to value (LTV) sought and in some case the amount of their earned income.
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Rental cover on a landlord mortgage
Rental cover is the relationship of the rent (actual or projected) generated by an investment property, in relation to the size of the payments on the proposed landlord mortgage. For instance, if a landlord was expecting rent from their residential investment property of £1000 pcm and the monthly payments on their proposed buy-to-let mortgage were £800, then the rental cover would be 125%. The minimum rental cover that buy-to-let mortgage companies require is normally 120 or 125%.
There are some lenders that will lend on a lower levels of rental cover.
The one aspect that a landlord needs to be aware of is how the projected mortgage payment figure is calculated. Buy-to-let lenders can use a ‘pay rate’ which means that the calculation is made using the actual interest rate of the chosen buy-to-let mortgage product. The other way the figure is derived is by the buy-to-let lender using a set margin above the Bank of England Base Rate (BBR). Occasionally, buy-to-let lenders will use a pre-determined interest rate or the lender’s Standard Variable Rate (SVR).
Loan To Value (LTV)
The loan to value (LTV) on a landlord mortgage is the estimated value of the buy-to-let residential investment property compared to the amount of loan required by the landlord. Typically, most buy-to-let lenders will advance between 60-75% of the residential investment properties value. Some mortgage lenders are prepared to go above this loan to value (LTV) . For more details about accessing high loan to value (LTV) buy-to-let landlord mortgages should have a look at Property Hawk’s specialist product lending area.
A minority of landlord mortgage lenders use a landlord’s personal income as a basis for assessing the affordability of a buy-to-let mortgage. To do this they take a landlord’s personal income and multiply it by their chosen multiple, say 3.5 to give them a figure for the maximum advance that they will consider on a buy-to-let investment property.
BTL lenders frequently also allow a 2nd salary to be included by the borrower. This is then assessed on a lower income multiple. Couples are also given the option to be assessed on their joint income.
Where a landlord still has an outstanding residential mortgage, the buy-to-let lender will frequently account for this when calculating the size of the buy-to-let mortgage that they are prepared to advance.
In the scenario where a landlord’s figures do not meet the buy-to-let mortgage provider’s criteria, a landlord may have to look to source a lender with more flexible lending criteria.
Often a landlord mortgage company or a mortgage broker will need evidence of a landlords income. This can be provided by a tax calculation( formerly known as a SA302) on the HMRC website if the landlord has submitted a self assessment return. Be warned finding the right section on the Revenue website is not easy and then refinding it can be even more taxing! HMRC don’t like to make it easy for anybody including landlords.
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