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By Pete Mugleston | Mortgage Advisor

Pete has been a mortgage advisor for over 10 years, and is regularly cited in both trade and national press.

Updated: 28th October 2020*

The advisors we work with are experts in buy-to-let (BTL) and can help you find the right finance for your circumstances, even if you’ve been declined for a mortgage in the past.

Here, we have provided an overview of the buy-to-let mortgage eligibility criteria UK lenders use to assess aspiring borrowers, as well as information that will help you decide whether this mortgage product is the right option for you.

You will find the following topics below…

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Buy to let mortgage eligibility criteria in the UK

Buy-to-let mortgages can be difficult to obtain for applicants who don’t own a residential home, but it’s not impossible. Most mortgage lenders have strict eligibility criteria but some are more flexible.

For instance, some are happy to deal with limited companies and a poor credit history isn’t the end of the world if you know which lender to approach. In these scenarios, having access to the whole of the market is essential and the advisors we work with have exactly that, so make an enquiry to be connected to the best buy to let mortgage broker for someone in your circumstances.

Most UK lenders will take the following into account when assessing whether an applicant meets their buy to let mortgage eligibility requirements…

General criteria

Income and affordability criteria

Where affordability is concerned, some lenders insist on a minimum income requirement for a buy to let mortgage – £25,000 is standard – especially if you’re a first-time landlord.

Other lenders will accept borrowers with lower personal income, but it is also possible to find a BTL provider that will impose no income requirements, instead basing the deal on the property’s rental potential – as long as it will cover the mortgage payments by 125-130% (more for higher rate taxpayers), most lenders will be satisfied.

Your income type could be taken into account

Buy to let lenders who have minimum income requirements may also be interested in how you make your money. A substantial PAYE salary is the most desirable from their point of view, but that doesn’t mean it’s impossible to find a favourable deal if you’re looking for a self-employed mortgage, or you’re contracting, in receipt of pension income or other benefit income.

Do you need to prove income for a buy to let mortgage?

Lenders who have specific income requirements for buy-to-let mortgages will expect you to prove that you earn the minimum amount.

If you’re self-employed, most lenders will ask to see three years’ worth of accounts, but some will be satisfied with two, a few one and a handful just one month.

If a portion of your income is made up from supplementary capital, e.g. bonuses, commission and benefits, a specialist lender may be required as not all providers take these into account and others impose caps on the amount they will include.

Most lenders will want to be confident that your forecast rental income will cover the mortgage payments. To prove this, you will need to obtain a letter from a letting agent that has the approval of the Association of Residential Letting Agents (ARLA).

The lender may also consider your outgoings

When assessing your affordability, the lender may also offset your income against any other outgoings you have, such as outstanding loans. Having significant outgoings could see the provider cap the amount you can borrow.

Deposit criteria

On average, buy-to-let mortgages require a larger deposit than residential.

The typical maximum loan to value (LTV) ratio for a buy-to-let mortgage sits at 75%, though you will find specialist lenders out there offering 80% and even 85% under the right circumstances, if you search the entire market. This means that you will need a deposit of at least 15%, and in some cases even more than that.

There are factors which affect the amount of deposit the lender will request. For instance, bad credit and non-standard construction are variables that can make a mortgage agreement higher risk, so the provider may ask you to put down a larger lump sum to safeguard themselves.

The source of your deposit will also be relevant, as it may restrict the number of approachable lenders. Those with uncommon deposit sources, such as cash savings and overseas investments should seek specialist advice.

Credit history

Applicants with poor credit history should seek out the lender who offers the most flexibility to someone in their circumstances.

Some UK mortgage providers are wary of customers with no credit history, those with county court judgements against their name and borrowers with individual voluntary arrangements (IVAs), as well as those with a track record of late payments or defaults.

If you’re seeking a BTL mortgage with adverse credit against your name, the good news is there are specialist lenders who handle prospective borrowers with these issues every day, and the advisors we work with are experts in this field. They can connect you with the lender most likely to offer a favourable deal.

What are the mortgage requirements for professional landlords?

Established landlords are generally more likely to pass a lender’s buy-to-let mortgage eligibility checks than a first-time buyer, but some providers are wary of borrowers with large portfolios and draw the line at four buy-to-let mortgages. These customers would be classed as portfolio landlords. A few, however, have no buy-to-let limits in this regard.

Is there an age limit for buy to let mortgages?

Age is a factor some lenders might consider when determining buy-to-let mortgage eligibility. The minimum age of applicants in the UK is 18, but some providers refuse to deal with borrowers under 21 or 25.

At the other end of the scale, some will only lend to applicants up to age 75, but for others, the cap is 85, and a minority of lenders list no age restrictions whatsoever in their buy-to-let mortgage criteria.

Property usage

Property usage could also be a crucial factor in the lender’s eyes. Most mortgage providers will gladly lend to someone planning to offer single assured short-term tenancies, but a more specialist lender, like the ones the advisors we work with can connect you to, may be required for buy to lets on houses with multiple occupants (HMOs), student flats or holiday/short term lets.

Repaying a buy to let repayment mortgage using rental income

When it comes to negotiating the term, make sure you set it against your repayment plan. If you will be using income from tenants to settle the loan, work out how long it will take to pay off the balance via their monthly rent.

For instance, it would take 18 years to pay off a £100,000 mortgage with 4% interest using rental income of £650 per month. Obviously, this only applies to BTL repayment mortgages, unless you’re intending to make overpayments.

Selling the property to settle the debt

If you’re planning to sell the property to settle the outstanding amount, taking out the longest term possible may be the most feasible option. This way, you’re giving the property the chance to increase in value and therefore cover the entirety of the loan plus profit when it changes hands.

There are, of course, other ways to settle your end-of-term debt, such as through the sale of another property, endowment policies and stocks and shares, and the advisors we work with can determine whether one of these repayment vehicles might be a better fit for you.

Buy to let mortgage criteria FAQs

Here, you will find answers to the most frequently asked questions about buy to let mortgages…

Who can get a buy to let mortgage?

In a nutshell, anyone who meets a buy-to-let lender’s affordability and eligibility requirements! Generally lenders prefer BTL applicants to already own a property, however, more lenders are recognising the need for first-time buyer BTLs or for those who have accommodation provided by their employer but still wanting to buy a property for investment.

Factors including bad credit, age, property type and income might rule some applicants out, depending on which lender they approach, but with whole-of-market access on your side it may be possible to find a specialist provider whose buy to let mortgage criteria, terms and conditions are flexible enough to offer you a favourable deal.

How much can I borrow?

In order to establish whether a buy to let mortgage is affordable to somebody in your circumstances, you must first consider how much you’re able to borrow, and this is a little more complicated than with residential mortgages.

How is affordability assessed?

It isn’t necessarily a simple case of multiplying your monthly salary by four, five or six (although some providers do have strict minimum income requirements written into their buy-to-let affordability rules). In line with their buy to let lending criteria, most providers will determine how much they’re happy to loan you based on LTV and rental valuation.

As previously mentioned, the maximum available LTV on a buy to let mortgage is 75%, although this could rise to 85% with some lenders. So, this means that the maximum amount you could borrow for a property worth £100,000 is £75,000, but then there’s rental valuation to factor in.

What if the rental valuation falls short?

If the rental valuation of the property is not high enough, the loan to value (LTV) may be lower, so the overall investment must demonstrate that the mortgage payments are supported by the rental income to an appropriate amount.

The way this is calculated can vary across the lender spectrum, though most insist that the rental income is between 125% and 130% of the mortgage payments, and they work out the mortgage payments using either the actual rate applied for (pay-rate), or at a set rate of 5+%.

Example: A £75,000 mortgage with a rental assessment of 125% at 5% interest…

£75,000 x 5% = £3750/12 (months) = £312.5 x 125% =  £390 rental income required.

This means carrying out some number crunching, but don’t worry, the advisors we work with will do the maths for you and establish whether you meet the typical buy to let mortgage affordability criteria that most UK lenders insist on. Even if you don’t meet the criteria there may be other options.

What is top-slicing?

Top-slicing is when a lender uses a borrower’s personal income to top up any shortfall in the rent to make up the loan amount they need. This could be an option if the projected rental income does not cover enough of the mortgage payments.

A limited number of lenders are willing to use top-slicing, and they will usually only do so if the landlord has high income and low outgoings.

If you think this might be a viable option for you, get in touch and the whole-of-market advisors we work with will help you find the provider most likely to offer you a favourable deal, based on your circumstances and their BTL mortgage criteria.

What additional costs will I incur as a landlord?

Whether a buy-to-let mortgage is truly affordable for somebody in your circumstances, might come down to whether you can stump up the funds to cover the additional costs you’ll incur as a landlord.

Investors will not qualify for Stamp Duty relief, so first-time buyers in the buy to let sector will have to pay standard rates on a property worth more than £40,000, plus a 3% surcharge.

What legal requirements are there?

Along with obtaining a buy to let mortgage, there are other legal requirements for UK landlords, and you’ll find a rundown of them below…

  • Gas safety:
    All UK landlords must arrange an annual inspection of the property’s gas supply gas appliances, carried out by a registered gas engineer.
  • Electrical safety:
    An electrical safety check must be commissioned before a new tenancy commences, and this must be conducted by a qualified electrician.
  • Energy performance certificates:
    Any UK property marketed for sale or rent in the UK must have an up-to-date energy performance certificate. Consult the Energy Saving Trust for further information.
  • Tenancy deposit schemes:
    Under UK legislation, all landlords must place tenant deposits in either a free custodial administered account or an insurance scheme and give the renter details of this within 14 days.
  • Landlord insurance:
    Some lenders might insist that you have landlord insurance on your buy to let property so you’re covered in the event of fire or flood damage. This will also protect your income stream which could dry up in the event of one of these catastrophes.
  • Furniture regulations:
    UK landlords must ensure that all furnishings comply with the latest fire regulations.

How do I secure the right term?

In truth, selecting the mortgage term in this sector is not as imperative as in residential, as the majority of the time, these deals are handed out on an interest-only basis where the monthly payments are the same whether you’re locked in for five years or 25 years.

That said, with the whole-of-market access provided by the experts we work with, there’s always the chance that you’ll find more favourable rates by shopping around.

The monthly cost of your mortgage will only change when you start repaying the capital, and whether you do that overtime on a monthly basis, or as a lump sum or through the sale of the property is up to you.

Can I apply online?

You certainly can. The advisors we work with are flexible when it comes to communication and the bulk of your application can be handled online, over the phone or via video calling, if you’d prefer. It may also be possible to have a face-to-face consultation with them in certain locations.

Is it illegal to rent out a house without a buy to let mortgage?

In most cases, you will need a buy-to-let mortgage to rent out an entire residential property to tenants. Doing so without one in place could mean that you’re committing mortgage fraud.

Can you rent to a family member under a buy to let mortgage?

Not on a standard buy-to-let mortgage as most lenders consider this too risky. This is due to the likelihood of the borrower letting the property out at a discounted rate.

In this scenario, you would need a specialist family buy-to-let mortgage, also known as a regulated buy to let. You can read more about them in our guide to regulated buy to let mortgages.

Talk to a buy to let expert today

If you have questions and want to speak to an expert for the right advice, call Online Mortgage Advisor today on 0808 189 2301 or make an enquiry online.

Then sit back and let us do all the hard work in finding the broker with the right expertise for your circumstances. We don’t charge a fee and there’s absolutely no obligation or marks on your credit rating.

Updated: 28th October 2020
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FCA disclaimer

*Based on our research, the content contained in this article is accurate as of most recent time of writing. Lender criteria and policies change regularly so speak to one of the advisors we work with to confirm the most accurate up to date information. The information on the site is not tailored advice to each individual reader, and as such does not constitute financial advice. All advisors working with us are fully qualified to provide mortgage advice and work only for firms who are authorised and regulated by the Financial Conduct Authority. They will offer any advice specific to you and your needs. Some types of buy to let mortgages are not regulated by the FCA. Think carefully before securing other debts against your home. As a mortgage is secured against your home, it may be repossessed if you do not keep up with repayments on your mortgage. Equity released from your home will also be secured against it.